Short-term stock returns following rating agencies announcements in large European firms

• Autor(a) principal: Lin, Jerson Li
• Data de Publicação: 2017
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/21884
• topic: Domínio/Área Científica::Ciências Sociais::Economia e Gestão

Using Moody’s and S&P’s bond and credit watch announcements between 2007 and 2016, I have found inconsistent results comparing to prior literatures. Conducting an event study to analyse the stock market, no reliable abnormal returns following downgrades were found while significant returns were observed following upgrades. Nevertheless, for changes within speculative grade both downgrades and upgrades had reliable abnormal returns. An analysis over the global financial crisis shows that the market can anticipate the rating changes and further reacts after downgrade announcements. After the crisis period very significant abnormal returns are observed only for upgrade announcements. For changes in Outlook, the market also seems have had anticipated, but after positive announcements the market reacts in the opposite expected direction. The same occurs for negative outlook announcements after the crisis period. The main explanation for my results being inconsistent with prior studies relies on the global financial crisis started in 2007 when markets went down drastically. During the recovery from the global financial crisis, many stocks were underpriced making rating downgrades ineffective to stock prices changes and upgrade a set of good news to increase stock prices.