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The Journal of Fixed Income

The Journal of Fixed Income

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Does It Really Hurt? An Empirical Investigation of the
Effects of Downgradings and Negative Watches on
European Bond Spreads

Jean-Noël Ory, Philippe Raimbourg and Antonio Salvi
The Journal of Fixed Income Winter 2011, 20 (3) 86-96; DOI: https://doi.org/10.3905/jfi.2011.20.3.086
Jean-Noël Ory
is an associate professor at Nancy 2 University in Cerefige, France.
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  • For correspondence: jean-noel.ory@univ-nancy2.fr
Philippe Raimbourg
is a professor at Paris 1 Panthéon-Sorbonne University and ESCP Europe in France.
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  • For correspondence: philippe.raimbourg@univ-paris1.fr
Antonio Salvi
is a professor at LUM “Jean Monnet” University in Bari, Italy and EM Lyon Business School in Lyon, France.
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  • For correspondence: salvi@em-lyon.com
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Abstract

Who feels the most pain when credit rating agencies announce a downgrading or negative watch? Does it hurt more or less, depending on the issuer’s original rating, the currency of the issue, or the economic activity of the issuer? Thanks to an alternative methodology, not relying on CARs but on Perron’s structural break test, this article aims to highlight the effect of the rating actions of the three main agencies (Moody’s, Standard and Poor’s, and Fitch Ratings) on European bond markets. A logit model is used to sort out the variables influencing the probability of reaction to a rating action. The authors then measure the magnitude of the reaction according to the significant variables. And they find, in many cases, it does not hurt at all!

TOPICS: Information providers/credit ratings, fixed-income portfolio management, developed markets [Europe], analysis of individual factors/risk premia

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The Journal of Fixed Income: 20 (3)
The Journal of Fixed Income
Vol. 20, Issue 3
Winter 2011
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Does It Really Hurt? An Empirical Investigation of the
Effects of Downgradings and Negative Watches on
European Bond Spreads
Jean-Noël Ory, Philippe Raimbourg, Antonio Salvi
The Journal of Fixed Income Dec 2010, 20 (3) 86-96; DOI: 10.3905/jfi.2011.20.3.086

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Does It Really Hurt? An Empirical Investigation of the
Effects of Downgradings and Negative Watches on
European Bond Spreads
Jean-Noël Ory, Philippe Raimbourg, Antonio Salvi
The Journal of Fixed Income Dec 2010, 20 (3) 86-96; DOI: 10.3905/jfi.2011.20.3.086
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  • Article
    • Abstract
    • STATISTICAL TOOLS AND DATA SET
    • ASSESSING THE PROBABILITY OF A REACTION
    • ASSESSING THE MAGNITUDE OF THE REACTION
    • CONCLUSION
    • APPENDIX 1
    • APPENDIX 2
    • ENDNOTES
    • REFERENCES
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