Rating Changes: The European Evidence

Posted: 28 May 2009

See all articles by Stefano Gatti

Stefano Gatti

Bocconi University - Department of Finance

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Federico Calderoni

affiliation not provided to SSRN

Date Written: June 1, 2009

Abstract

How do European stocks react to rating actions issued by Rating Agencies' Since rating agencies process private information and spread it on financial markets through upgrades and downgrades, stock investors should react to rating announcements conveying good or bad news. Using a Pan-European sample of more than 500 credit rating changes released by Moody's in the period 2002-2007 we show that the reaction to rating changes is asymmetric. Downgrades negatively affect equity value and upgrades show no significant impact on stock prices. The negative impact of downgrades is more intense in non-UK firms and for non-financial companies suggesting lower asymmetric information or higher disclosure in UK than in other European countries. Finally, multiple notch downgrades result in a larger stock price decrease compared to one notch negative actions.

Suggested Citation

Gatti, Stefano and Colla, Paolo and Calderoni, Federico, Rating Changes: The European Evidence (June 1, 2009). CAREFIN Research Paper Series. Available at SSRN: https://ssrn.com/abstract=1410646

Stefano Gatti (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Paolo Colla

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Federico Calderoni

affiliation not provided to SSRN ( email )

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