IMPACT OF CREDIT RATINGS ON STOCK RETURNS

  • Krishna Reddy Toi Ohomai Institute of Technology
  • Rudi Bosman WINTEC
  • Nawazish Mirza S P Jain School of Global Management
Keywords: Credit rating, Firms, Stock returns, Global financial crisis

Abstract

This study investigates whether a change in credit ratings lead to a change in dailyexcess stock returns. The sample includes daily stock price data for US firms listedon the Standard & Poor’s 500 from January 2006 to December 2015. Firms’ excessstock returns are compared with the market in a 14-day window around credit ratingdowngrades and upgrades. Our results are asymmetric, that is, there is a significantreaction to credit ratings downgrades but not to upgrades. In addition, we report weakevidence of upgrades in credit ratings since the 2008 global credit crisis leading tosignificant changes in security prices.

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Published
2019-02-28
Section
Articles