Do Market-Based Indicators Anticipate Rating Agencies? Evidence for International Banks

30 Pages Posted: 19 May 2006

Multiple version iconThere are 2 versions of this paper

Abstract

This paper analyses the ability of credit default swap (CDS) spreads, bond spreads and stock prices to anticipate the decisions of the main rating agencies, regarding the largest international banks. Conditional on negative rating events, all the three indicators show significant abnormal changes before both announcements of review and actual credit rating changes, but rating actions still seem to convey new information to the market. Results for positive rating events are less clear-cut with the market indicators generally showing abnormal behaviours only in conjunction with the events. As for the predictive power of the financial indicators examined, the CDS market is particularly useful for negative events and stock prices for positive events. However, all indicators also send many false signals and are to be interpreted with care.

Suggested Citation

Di Cesare, Antonio, Do Market-Based Indicators Anticipate Rating Agencies? Evidence for International Banks. Economic Notes, Vol. 35, No. 1, pp. 121-150, February 2006, Available at SSRN: https://ssrn.com/abstract=901846 or http://dx.doi.org/10.1111/j.0391-5026.2006.00161.x

Antonio Di Cesare (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
777
PlumX Metrics