The Response of Bond Prices to Insurer Ratings Changes

Miao, H., Ramchander, S., & Wang, T. (2014). The Response of Bond Prices to Insurer Ratings Changes. The Geneva Papers on Risk and Insurance-Issues and Practice, 39(2), 389-413.

Posted: 20 Apr 2015 Last revised: 20 Oct 2015

See all articles by Hong Miao

Hong Miao

Colorado State University, Fort Collins - Department of Finance & Real Estate

Sanjay Ramchander

Colorado State University, Fort Collins - Department of Finance & Real Estate

Tianyang Wang

Colorado State University - Department of Finance & Real Estate

Date Written: February 18, 2014

Abstract

This paper examines the impact of insurer ratings changes on bond prices. Using insurer ratings from four major rating agencies and data covering the recent financial crisis period, we document that downgrades have a strong negative price impact on bond prices, especially when the downgrades are reinforced by multiple agencies. In contrast, the announcement-day impact of upgrades is found to be weak. Our evidence is consistent with the predictions of structural credit risk models.

Keywords: insurer ratings changes; ratings agency; bond price impact; event study

JEL Classification: G13

Suggested Citation

Miao, Hong and Ramchander, Sanjay and Wang, Tianyang, The Response of Bond Prices to Insurer Ratings Changes (February 18, 2014). Miao, H., Ramchander, S., & Wang, T. (2014). The Response of Bond Prices to Insurer Ratings Changes. The Geneva Papers on Risk and Insurance-Issues and Practice, 39(2), 389-413.. Available at SSRN: https://ssrn.com/abstract=2596099

Hong Miao

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Sanjay Ramchander

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States
970-491-6681 (Phone)

Tianyang Wang (Contact Author)

Colorado State University - Department of Finance & Real Estate ( email )

Finance and Real Estate Department
1272 Campus Delivery
Fort Collins, CO 80523
United States

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