The Effect of Municipal Bond Rating Change Announcements on Seasoned Bond Prices
Municipal Finance Journal, Fall 1994, 15(3): 17-35
Posted: 30 Aug 2014
Date Written: 1994
In the municipal bond market, announcements of changes in general obligation bond ratings by the rating agencies are typically made concurrently with announcements of new bond issues. Hence, prior research on the information content of municipal bond rating change announcements is subject to the possible confounding effects of concurrent announcements of new bond issues. Jantscher ( 1970) concluded that bonds sell at prices that reflect rating changes prior to the actual change announcement. Ingram et al. (1983), on the other hand, report that municipal bond prices respond contemporaneously to rating change announcements, i.e., that the market is not able to anticipate rating revisions. However, since Ingram et al. (1983) did not control for the potential information effects of concurrent new issues, their results could be misleading, whereas Jantscher only examined new issues. This paper examines the effect of rating change announcements on municipal seasoned bond prices after controlling for the potentially confounding effects of new bond issues.
Keywords: Government rating change announcements, Seasoned bond prices
JEL Classification: g18, l11, l15, l51, l80, m40, m41, m42, m48
Suggested Citation: Suggested Citation