On the relationship between credit rating announcements and credit default swap spreads for European reference entities

Abstract

Previous research suggests that credit rating announcements by Moody's are anticipated by participants in the credit default swap market. In particular, it is argued that downgrades and negative outlook reports do not contain significant information, but there seems to be anticipation of both types of ratings announcements. In this paper, we examine credit default swap spread changes conditional on a ratings announcement for European reference entities. For our sample of J.P. Morgan Trak-X Europe companies, we find evidence that downgrades and negative outlooks do contain significant information, but find no evidence that announcements are anticipated by participants in the credit default swap market. Additionally, we find evidence that CDS spreads initially do not fully adjust to the information in positive or stable outlook reports resulting in significant post-announcement day effects.

The determinants of bank CDS spreads: evidence from the financial crisis

“…7 Among the studies focusing on the structural models' theoretical determinants of CDS spreads are Aunon-Nerin et al (2002), Benkert (2004), Zhang et al (2005) and Abid and Naifar and rating announcements (Daniels and Shin Jensen, 2004;Hull et al, 2004;Norden and Weber, 2004;Blanco et al, 2005;and Lehnert and Neske, 2006). Previously, research had analysed the impact of credit rating announcements on stock prices, bond prices or both.…”

The joint credit risk of UK global‐systemically important banks

“…We fill this gap and investigate whether the dependence structure among the CDS spread changes is asymmetric or not. The CDS spread normally incorporates negative news much faster than positive news, see for instance Lehnert and Neske (2006). Table 4 reports the test results for the asymmetric dependence between the CDS spread changes.…”

“…The higher upper tail dependence of the CDS spreads may be due to the asymmetric reaction of the CDS spreads to negative and positive market news. The CDS spread normally incorporates negative news much faster than positive news, see for instance Lehnert and Neske (2006). Thus, when the credit market was deteriorated sharply during the crisis, firm's CDS spreads (insurance cost) tend to increase rapidly.…”

Türkiye’nin Derecelendirme Notları Ve Kredi Temerrüt Swap Primlerinin Ekonomik Ve Sosyal Olaylara Tepkisinin Analizi

“…Yapılan her çalışma, bu etkileşimi ya da kredi değerliliğinin ölçülmesi noktasında her iki aracın gösterdiği başarıyı, şirketler veya ülkeler ölçeğinde çeşitli açılardan test etmek suretiyle gerçekleştirilmektedir. Lehnert ve Neske (2006) tarafından yapılan çalışmada ise, fiili not düşüşlerinin önemli bilgi içerdiği, farklı derecelendirme duyurularının piyasalarca öngörülemediği, pozitif ya da durağan görünüm raporlarının duyuru sonrası CDS primleri üzerinde önemli bir etkisi olduğu ve negatif görünüm raporları ile not düşüşlerinin piyasalar tarafından birbirinden bağımsız olaylar olarak kabul edildiği tespitlerine ulaşılmıştır. Micu, Remolona ve Wooldridge (2006), daha önce yaptıkları çalışmayı geliştirmek suretiyle derecelendirme duyurularının CDS primleri üzerindeki etkisini incelemiştir.…”