Bond Rating Agencies and Stock Analysts: Who Knows What When?

Ederington, Louis H.; Goh, Jeremy; Nelson, Jacob

doi:10.2139/ssrn.940

Cited by 110 publications

(97 citation statements)

References 7 publications

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“…Their evidence is in line with previous findings that stock prices and stock analyst forecasts predict rating changes (e.g. Holthausen andLeftwich, 1986, andEderington andGoh, 1998). Extant normative or descriptive papers on rating systems do not address the problem of rating bounces.…”

Section: Introductionsupporting

confidence: 86%

Avoiding the rating bounce: why rating agencies are slow to react to new information

Löffler

2005

Journal of Economic Behavior & Organization

129

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Rating agencies state that they take a rating action only when it is unlikely to be reversed shortly afterwards. Based on a formal representation of the rating process, I show that such a policy provides a good explanation for the puzzling empirical evidence: Rating changes occur relatively seldom, exhibit serial dependence, and lag changes in the issuers' default risk. In terms of informational losses, avoiding rating reversals can be more harmful than monitoring credit quality only twice per year.

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Section: Introductionsupporting

confidence: 86%

Avoiding the rating bounce: why rating agencies are slow to react to new information

Löffler

2005

Journal of Economic Behavior & Organization

129

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“…The computed CAARs are rather unstable across models and event windows, but they do not contradict prediction 1 since there are two event windows over which the stock price behavior of widely held banks suggests that their shareholders are more surprised by the downgrade announcement. Firstly, 27 Similar event studies of rating events can be found, for example, in Hand et al (1992) or Goh and Ederington (1993) and Ederington and Goh (1998) and, more recently, in Ongena et al (2003), andPurda (2007). 28 See also Ongena et al (2003).…”

Section: Robustness Tests 2: An Event Study Of the Rating Downgradesmentioning

confidence: 78%

Too Dispersed to Monitor? Ownership Dispersion, Monitoring, and the Prediction of Bank Distress

Auvray¹,

Brossard²

2012

J of Money Credit Banking

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Abstract:This paper conducts an empirical assessment of the theories stating that ownership concentration improves the quality of shareholders' monitoring. In contrast with other studies, we do not use regressions of risk/performance on ownership concentration. Instead, we build an early warning model of bank distress that includes a leading indicator derived from banks' share price, the Merton-KMV distance to default (DD). The significance of this indicator depends on the efficacy of shareholders' monitoring. On a sample of European banks, we show that the predictive power of the DD is satisfactory only when banks' shareholding is characterized by the presence of blockholders.

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“…According to Ederington and Goh (1998), the different market reactions to upgrades and downgrades can be explained by the fact that positive news are disseminated more quickly than negative news and, therefore, the impact of positive news on stocks is absorbed sooner. Another possible explanation raised by the authors is that rating agencies invest more resources in the search for causes of deterioration in companies' financial situations than they do for causes of credit enhancements.…”

Section: Average Carmentioning

confidence: 99%

The impact of credit rating changes in Latin American stock markets

Freitas

Minardi

2013

BAR, Braz. Adm. Rev.

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Our objective is to examine whether a rating change or Credit Watch announcement has a significant impact on Latin American stock prices. We conducted an event study to analyze stock market reaction to such news in the four major Latin American economies: Argentina, Brazil, Chile and Mexico. We find similar results to those previously observed in the literature, wherein the impact is quite significant for rating downgrades but less relevant for rating upgrades and Credit Watches. We also run cross section regressions to investigate which variables best explain the impact rating changes announcements have on stock prices in these countries. The results indicate that the most significant variable is the absolute change in the number of notches for downgrades. We conclude that credit ratings are relevant information in Latin America.

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Bond Rating Agencies and Stock Analysts: Who Knows What When?

Cited by 110 publications

References 7 publications

Avoiding the rating bounce: why rating agencies are slow to react to new information

Avoiding the rating bounce: why rating agencies are slow to react to new information

Too Dispersed to Monitor? Ownership Dispersion, Monitoring, and the Prediction of Bank Distress

The impact of credit rating changes in Latin American stock markets

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