Do rating agencies’ decisions impact stock risks? Evidence from European markets

Hubler, Jérôme; Louargant, Christine; Ory, Jean‐Noël; Raimbourg, Philippe

doi:10.1080/1351847x.2013.815125

Cited by 10 publications

(7 citation statements)

References 52 publications

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“…2. See, for instance, Holthausen and Leftwich (1986), Ederington and Goh (1998), Ederington (1993, 1999), Dichev and Piotroski (2001), Zhang (2007, 2010), Abad-Romero and Robles-Fernandez (2006, Hubler et al (2014). 3.…”

Section: Resultsmentioning

confidence: 99%

How Do Rating Agencies’ Decisions Impact Stock Markets? A Meta‐analysis

Hubler

Louargant

Laroche

et al. 2019

Journal of Economic Surveys

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The purpose of this study is to examine how credit rating agencies’ decisions impact the stock market using a systematic and quantitative review of existing empirical studies. Specifically, we employ a meta‐regression analysis (MRA) to investigate the extent and nature of the effect of rating agencies’ decisions on the stock market. We survey 62 studies published between 1978 and 2015. Our first finding is that the cumulative average abnormal returns calculated from this empirical literature are affected by publication bias. After controlling for publication bias, the main findings of our meta‐analysis indicate that negative rating decisions cause statistically significant negative abnormal returns. This evidence suggests an informational effect. Our results also indicate that positive rating decisions do not have a significant effect. Finally, the MRA results reveal the importance of several factors related to primary study design, as well as to the nature of the data.

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Section: Resultsmentioning

confidence: 99%

How Do Rating Agencies’ Decisions Impact Stock Markets? A Meta‐analysis

Hubler

Louargant

Laroche

et al. 2019

Journal of Economic Surveys

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“…As Abad and Robles () and Hubler et al () have shown, rating events can also affect the idiosyncratic risk of the re‐rated firm. We capture this possibility by modelling

var (ϵ_{i t})

in the return model (2) as a GJR‐GARCH process as follows:

\begin{matrix} left \\ center var (ε_{i t}) = h_{i t} \\ center h_{i t} = ω_{0 i} + \sum_{q = 1}^{Q} ω_{1 i q} ε_{i t - q}^{2} + \sum_{p = 1}^{P} ω_{2 i p} h_{i t - p} + \sum_{q = 1}^{Q} ω_{3 i q} S_{t - p}^{-} ε_{i t - q}^{2} + ϕ_{s i}^{} D_{s t}, \end{matrix}

where, D st is the event‐window dummy defined above.…”

Section: Modelling and Testing Strategymentioning

confidence: 98%

“…As Abad and Robles (2014) and Hubler et al (2013) have shown, rating events can also affect the idiosyncratic risk of the re-rated firm. We capture this possibility by modelling varðε it Þ in the return model (2) as a GJR-GARCH process as follows:…”

Section: Probability Of An Informative Rating Changementioning

confidence: 98%

“…The central conclusion is that returns are influenced by bond rating changes, especially by downgrades (e.g., Matolcy and Lianto, ; Barron et al , ; Elayan et al , ; Abad and Robles, , ; Purda, or Jorion and Zhang, ). Few studies present evidence concerning the effects of rating changes on issuer risk (Impson et al , ; Chandra and Nayar, ; Barron et al , ; Abad and Robles, , ; Hubler et al , ). In both cases, the results demonstrate the importance of rating change announcements in revealing specific information that is relevant to price formation.…”

Section: Introductionmentioning

confidence: 99%

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The Risk–Return Binomial After Rating Changes

Romero

Fernández

2015

Economic Notes

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Risk-averse investors take into consideration risk-return tradeoff for decide their new position after the release of relevant information. This paper analyzes the informational content of rating change announcements focusing on the joint reaction they cause on the risk-return binomial. Our purpose is to identify the main factors that signal which announcements are informative. To do that we estimate a binomial logit model for the probability of informative content of credit rating announcements.We analyze a sample of rating events affecting Spanish listed firms from 2000 to 2010.Empirical results show significant differences in the informative content between positive and negative rating events. For both kinds of announcements, we find higher informative content when agencies agree about the new level of solvency, whereas those affecting high covered firm that operate in highly regulated sectors are the less informative. Other factors as the presence of a previous rating refinements or trends in the credit quality reveals different information depending on the direction of the rating event. Finally, we find the announcements after de crisis disclose less information, suggesting a loss of reputation of CRAs. Abstract.Risk-averse investors take into consideration risk-return tradeoff for decide their new position after the release of relevant information. This paper analyzes the informational content of rating change announcements focusing on the joint reaction they cause on the risk-return binomial. Our purpose is to identify the main factors that signal which announcements are informative. To do that we estimate a binomial logit model for the probability of informative content of credit rating announcements.We analyze a sample of rating events affecting Spanish listed firms from 2000 to 2010.Empirical results show significant differences in the informative content between positive and negative rating events. For both kinds of announcements, we find higher informative content when agencies agree about the new level of solvency, whereas those affecting high covered firm that operate in highly regulated sectors are the less informative. Other factors as the presence of a previous rating refinements or trends in the credit quality reveals different information depending on the direction of the rating event. Finally, we find the announcements after de crisis disclose less information, suggesting a loss of reputation of CRAs. JEL Classification: G12, G14, G24, C22Key words: Abnormal return, abnormal systematic risk, abnormal volatility, logit model Acknowledgements:

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“…Martell (2005) stated that the credit ratings announced with Standard & Poor's have a positive relationship with stock prices. Haan and Amtenbrink (2011), Mateev (2012), Hubler et al (2014) stated that the decisions of credit rating agencies are important for their relationship with markets, structural arrangements and supervision. Toraman and Yürük (2008) stated that although the credit rating agencies define the rating as giving an idea about the credibility of the borrower due to a specific financial obligation or financial program, the grades given do not affect the country, the firm and the investor.…”

Section: Structured Abstractmentioning

confidence: 99%

Kredi̇ Not Duyurularinin Pay Senedi̇ Pi̇yasalari Üzeri̇ne Etki̇si̇: Borsa İstanbul Üzeri̇ne Bi̇r Uygulama

Alsu¹

2019

TurkishStudies

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Do rating agencies’ decisions impact stock risks? Evidence from European markets

Cited by 10 publications

References 52 publications

How Do Rating Agencies’ Decisions Impact Stock Markets? A Meta‐analysis

How Do Rating Agencies’ Decisions Impact Stock Markets? A Meta‐analysis

The Risk–Return Binomial After Rating Changes

Kredi̇ Not Duyurularinin Pay Senedi̇ Pi̇yasalari Üzeri̇ne Etki̇si̇: Borsa İstanbul Üzeri̇ne Bi̇r Uygulama

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