Credit Rating Announcements and Stock Returns: Evidence from the Banking Sector of Pakistan

Habib, Yasir; Nazir, Muhammad Imran; Hashmi, Shujahat Haider; Ali, Mohammad Sami

doi:10.2139/ssrn.2742879

Cited by 6 publications

(3 citation statements)

References 28 publications

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“…However, the small sample made it difficult to generalize. At the same time, similar results were obtained in Pakistan [32]: a significant positive response of the market to bank rating downgrades by the Pakistan Credit Rating Agency and an insignificant negative response to rating upgrades.…”

Section: Literature Reviewsupporting

confidence: 76%

Testing Russian Stock Market Efficiency Using Event Studies: Impact of Credit Ratings Changes

Avrutskaya

Maricheva²

2021

КФ

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Event study is a widespread technique for testing the semi-strong form of the market efficiency hypothesis. Among traditionally studied events, changes in corporate credit ratings by rating agencies have a special importance, since rating agencies use both publicly available and insider information. Studies of developed and emerging markets point to different reactions of stock prices to rating upgrades and downgrades and identify several factors affecting the scale of this effect, including the size and liquidity of the stock market, the level of regulation of the industry, the market capitalization of the company, the status of the rating agency, and others. On the Russian market, the impact of credit rating upgrades and downgrades on stock prices has not been investigated so far. Ongoing studies of other events affecting stock prices show that the market’s reactions are pretty much in line with those of developed markets, despite its immaturity, limited transparency, high volatility, narrowness and low liquidity, as well as the small number of significant events. In this article, we evaluate the level of efficiency of the Russian stock market and analyse the reaction of stock prices to changes in issuer credit ratings by international rating agencies using the traditional event study methodology in a narrow event window of 31 days over the period 2016–2020 on a sample of 49 public companies. We show that credit rating upgrades do not lead to statistically significant positive abnormal returns. Visual analysis demonstrates that rating downgrades result in substantial negative abnormal returns. This effect varies for financial and non-financial companies and companies with low and high capitalization yet differs from the effects observed for developed markets; nevertheless, these abnormal returns are not statistically significant. Still, there are grounds to conclude that the Russian stock market is not efficient in the semi-strong form and is closer in its characteristics to emerging markets, which is important information for investors, as it permits them to develop profitable trading strategies.

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Section: Literature Reviewsupporting

confidence: 76%

Testing Russian Stock Market Efficiency Using Event Studies: Impact of Credit Ratings Changes

Avrutskaya

Maricheva²

2021

КФ

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“…A study on the relationship of Asymmetric Information to Capital Market Efficiency, conducted by Habib et al [ 29 ], examined the impact of credit rating announcements on the return on shares of 22 banks assessed by the Pakistan Credit Rating Agency and listed on the Karachi Stock Exchange. They showed that the announcement of credit ratings had no significant effect on the abnormal returns of the shares of the sample bank; the downgrade announcement showed a significant positive response, while the upgrade announcement gave an insignificant negative response.…”

Section: Literature Reviewmentioning

confidence: 99%

Stock market reaction to government policy on determining coal selling price

Sunardi¹,

Noviolla²,

Supramono³

et al. 2023

Heliyon

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“…Findings indicate that credit rating downgrades have a significant impact on the market responsiveness, while this effect is far lower in raising credit ratings. Habib et al (2015) investigated the impact of credit ratings on the stock return of 22 active banks ranked by the Pakistan Ranking Authority in the Karachi Stock Exchange. The results indicate that credit ratings do not have a significant effect on the abnormal return of banks.…”

Section: Credit Riskmentioning

confidence: 99%

Asymmetric Reaction of Investors to Market Risk, Illiquidity Risk, and Credit Risk: Evidence from Tehran Stock Exchange (TSE)

Peymany

Erza

Seifi

2020

IJFIFSA

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The relationship between risk and return is not symmetric under different circumstances. As the prospect theory describes, the value function which passes through the reference point is steeper for losses than gains (asymmetric risk appetite). But such an asymmetrical risk aversion could be traced in different periods of investment and market boom and bust cycles behind the reference point. Moreover, v ' ic behavior is different regarding various risks, such as market risk, illiquidity risk, and credit risk. This paper examines the asymmetric investors' reaction to various risks in Tehran Stock Exchange (TSE) both in recession and growth from 2011 through 2016. Evidence reveals that although all three kinds of k l v , p ll ll q d k, k ' xpl p w bullish market is less than the bearish one. This indicates that investors tend to show an asymmetric reaction to risk in up and downswing markets. The asymmetric b v l p d d v ' w k k k growing market in opposition to a recessive market condition that turns out to be an important risk consideration. The results of this study can help investors to consider asymmetrical behavior effect when they are making their minds on investment decisions.

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Credit Rating Announcements and Stock Returns: Evidence from the Banking Sector of Pakistan

Cited by 6 publications

References 28 publications

Testing Russian Stock Market Efficiency Using Event Studies: Impact of Credit Ratings Changes

Testing Russian Stock Market Efficiency Using Event Studies: Impact of Credit Ratings Changes

Stock market reaction to government policy on determining coal selling price

Asymmetric Reaction of Investors to Market Risk, Illiquidity Risk, and Credit Risk: Evidence from Tehran Stock Exchange (TSE)

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