Are Credit Rating Agencies Useless? The Role of Rating Agencies in European Bond Markets: Information Transmission vs. Spread Stabilization

41 Pages Posted: 12 May 2011

See all articles by Philippe Raimbourg

Philippe Raimbourg

Université Paris I Panthéon-Sorbonne

Jean‐Noël Ory

CEREFIGE, University of Lorraine

Date Written: May 1, 2011

Abstract

Thanks to an analysis of structural changes in abnormal spread series, we stress specific investors’ reactions to rating actions. These reactions are much more usual when the issues are in sterlings than in euros. When reacting in the euro area, investors mainly react after banks’ and public issuers’ downgrading but before corporate issuers’ downgrading. If rating agencies transmit information about banks’ default risk, we cannot say they are useless for European corporate issuers. Among these issuers, their function is to confirm (or not) the informed investors’ perception of default risk, and, in doing so, to stabilize (or not) the bond spreads.

Suggested Citation

Raimbourg, Philippe and Ory, Jean‐Noel, Are Credit Rating Agencies Useless? The Role of Rating Agencies in European Bond Markets: Information Transmission vs. Spread Stabilization (May 1, 2011). International Conference of the French Finance Association (AFFI), May 11-13, 2011, Available at SSRN: https://ssrn.com/abstract=1836888 or http://dx.doi.org/10.2139/ssrn.1836888

Philippe Raimbourg (Contact Author)

Université Paris I Panthéon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France
+33 1 40 46 27 62 (Phone)
+33 1 40 46 31 77 (Fax)

Jean‐Noel Ory

CEREFIGE, University of Lorraine ( email )

13 rue Michel Ney
Nancy, 54000
France

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