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On the Impact of Bond's Rating Changes on the Firm's Stock Price

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  • Gil Cohen

Abstract

In the following research I have studied how bond rating changes that was conducted by Israel leading rating agency is affecting the firm's stocks abnormal returns. In order to do so I have examined 9 bonds upgrades and 9 downgrades from December 2012 until October 2013. For each of the stocks I have calculated three times abnormal return 30 days before and 60 days after the event. Results show that bond's rating downgrades has a more significant effect on the socks abnormal return than upgrades. This is especially true for bonds that were downgraded from Lower-medium grade to Non- Investment grade. Moreover, the downgrade effect on the stock price is diminishing after 45 days.

Suggested Citation

  • Gil Cohen, 2014. "On the Impact of Bond's Rating Changes on the Firm's Stock Price," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(1), pages 64-70, January.
    • Handle: RePEc:jfr:ijfr11:v:5:y:2014:i:1:p:64-70
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    References listed on IDEAS

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    Cited by:

    1. Tima T. Moldogaziev & Tatyana Guzman, 2015. "Economic Crises, Economic Structure, and State Credit Quality Through-the-Cycle," Public Budgeting & Finance, Wiley Blackwell, vol. 35(4), pages 42-67, December.

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