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Impact Of Credit Ratings On Stock Returns

Author

Listed:
  • Krishna Reddy

    (Toi Ohomai Institute of Technology)

  • Rudi Bosman

    (Waikato Institute of Technology)

  • Nawazish Mirza

    (La Rochelle Business School)

Abstract

This study investigates whether a change in credit ratings lead to a change in daily excess stock returns. The sample includes daily stock price data for US firms listed on the Standard & Poor’s 500 from January 2006 to December 2015. Firms’ excess stock returns are compared with the market in a 14-day window around credit rating downgrades and upgrades. Our results are asymmetric, that is, there is a significant reaction to credit ratings downgrades but not to upgrades. In addition, we report weak evidence of upgrades in credit ratings since the 2008 global credit crisis leading to significant changes in security prices.

Suggested Citation

  • Krishna Reddy & Rudi Bosman & Nawazish Mirza, 2019. "Impact Of Credit Ratings On Stock Returns," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 21(3), pages 343-366, January.
    • Handle: RePEc:idn:journl:v:21:y:2019:i:3d:p:1-24
    DOI: https://doi.org/10.21098/bemp.v21i3.986
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    More about this item

    Keywords

    Credit Ratings; Firms; Stock Returns; Global Financial Crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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