The Wealth and Risk Effects of International Bond Ratings in Mexico
Journal of Emerging Markets, Vol. 4, No. 2, Summer 1999
Posted: 20 Dec 2001
This paper examines the wealth and risk effects of new international bond ratings by Moody's and S&P's for selected private firms and government-owned entities in Mexico. Time series regression methods are employed to test for significant shifts in the mean levels as well as the variance of weekly bond and stock returns in the months before and after the announcement of an international rating. In general, with some exceptions, the empirical results indicate that Mexican firms experienced both positive and negative wealth effects but no change in price risk from the new ratings. Wealth effects in terms of stock returns appear to be influenced by whether new ratings increased or decreased the cost of debt capital. We conclude that international ratings contain new information not previously available to the financial market.
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