How credit rating agencies influence the stock markets: Event study

• Autor(a) principal: Branco, João Belo
• Data de Publicação: 2012
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/6389
• topic: Credit ratings; Event studies; Abnormal returns; Efficient market theory; Classificação de risco de crédito; Estudo de eventos; Retornos anormais; Teoria da eficiência de mercado

This study attempts to find whether rating agencies still have an impact on the stock market after the subprime crisis of 2008. I examine the abnormal returns surrounding the rating changes and outlooks, on the firms present in Standard & Poor’s 500 stock Index. The analysis goes partially along with previous literature. Initial rating opinions (outlooks) have much more impact than credit ratings, being clear a dominance of downside information significance over the upside one. Also in line with previous findings, Moody’s is the rating agency with the biggest impact on the American stock market, followed by Standard and Poor’s, leaving Fitch almost irrelevant. In addition, this study points out that rating agencies do not have such big impact on markets like before the 2008 crises, nonetheless they still influence a part of investors when taking their investment decisions otherwise no reaction would be noticed in the stocks’ abnormal returns. I analyze as well if it is possible to have continuous gains when investing upon credit rating announcements in the medium term and conclude that upon diversification an investing strategy can be used when one successfully predicts the rating change. However for outlooks our analysis is not conclusive.