RT Journal Article
SR Electronic
T1 Does It Really Hurt? An Empirical Investigation of the
Effects of Downgradings and Negative Watches on
European Bond Spreads
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 86
OP 96
DO 10.3905/jfi.2011.20.3.086
VO 20
IS 3
A1 Jean-Noël Ory
A1 Philippe Raimbourg
A1 Antonio Salvi
YR 2010
UL https://pm-research.com/content/20/3/86.abstract
AB 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