The Price Impact of Rating Announcements: Which Announcements Matter?

31 Pages Posted: 20 Sep 2007

See all articles by Marian Micu

Marian Micu

Swiss Re

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department

Philip D. Wooldridge

Bank for International Settlements (BIS)

Date Written: June 2006

Abstract

Credit rating agencies make multiple announcements, some of which are intended to reflect the latest information available about a firm and others of which are intended to provide a stable signal of credit quality. Using data on CDS spreads, we examine which of these different types of rating announcements contains pricing-relevant information. We find that all types, including changes in outlook, have a significant impact on CDS spreads. Even rating announcements preceded by similar announcements have an impact. The price impact is greatest for firms with split ratings, smallcap firms and firms rated near the threshold of investment grade.

Keywords: Credit default swaps, credit ratings, event study, market reaction

JEL Classification: G14

Suggested Citation

Micu, Marian and Remolona, Eli M. and Wooldridge, Philip D., The Price Impact of Rating Announcements: Which Announcements Matter? (June 2006). BIS Working Paper No. 207, Available at SSRN: https://ssrn.com/abstract=911598 or http://dx.doi.org/10.2139/ssrn.911598

Marian Micu (Contact Author)

Swiss Re ( email )

Mythenquai 50
Zurich, ZH 8022
Switzerland

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

IFC 2 Bldg, 78/F
Central
Hong Kong
Hong Kong
+852 2982 7150 (Phone)
+852 2982 7123 (Fax)

Philip D. Wooldridge

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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