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Does it really hurt ? An empirical investigation of the effects of downgradings and negative watches on European bond spreads

Author

Listed:
  • Jean-Noël Ory

    (CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine)

  • Philippe Raimbourg

    (ESCP Europe - Ecole Supérieure de Commerce de Paris)

  • Antonio Salvi

Abstract

Who feels the most pain when credit rating agencies announce a downgrading or negative watch? Does it hurt more or less, depending on the issuers original rating, the currency of the issue, or the economic activity of the issuer? Thanks to an alternative methodology, not relying on CARs but on Perron's structural break test, this article aims to highlight the effect of the rating actions of the three main agencies (Moody's, Standard and Poor's, and Fitch Ratings) on European bond markets. A logit model is used to sort out the variables influencing the probability of reaction to a rating action. The authors then measure the magnitude of the reaction according to the significant variables. And they find, in many cases, it does not hurt at all!

Suggested Citation

  • Jean-Noël Ory & Philippe Raimbourg & Antonio Salvi, 2011. "Does it really hurt ? An empirical investigation of the effects of downgradings and negative watches on European bond spreads," Post-Print hal-02312649, HAL.
    • Handle: RePEc:hal:journl:hal-02312649
    DOI: 10.3905/jfi.2011.20.3.086
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    Cited by:

    1. Kiesel, F., 2016. "The effect of credit and rating events on credit default swap and equity markets," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 81247, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Stefano Lovo & Philippe Raimbourg & Federica Salvadè, 2022. "Credit rating agencies, information asymmetry and US bond liquidity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(9-10), pages 1863-1896, October.
    3. Kiesel, Florian, 2016. "The effect of credit and rating events on credit default swap and equity markets," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 81265, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).

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