Stock Price Synchronicity and Current and Potential Credit Ratings

Figlioli, Bruno; Antônio, Rafael Moreira; Lima, Fabiano Guasti

doi:10.5539/ijef.v11n10p1

IJEF

2019

DOI: 10.5539/ijef.v11n10p1

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Stock Price Synchronicity and Current and Potential Credit Ratings

Bruno Figlioli¹,

Rafael Moreira Antônio²,

Fabiano Guasti Lima³

Abstract: This study examines whether the stock prices reflet the relevant information on the companies´current and potential credit ratings. This investigation was carried out from the construct of stock price synchronicity, that is, the more the stock prices reflect the specific information of a certain company, the less the synchronicity of these prices in relation to the market general information tends to be. It would imply that the stock prices tend to be more informative on the companies´poten… Show more

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2024

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Cited by 2 publications

References 34 publications

(49 reference statements)

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Impact of the COVID-19 outbreak on credit ratings: Application of the through-the-cycle approach

Terreno,

Donadille

2024

Rev. contab. finanç.

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The objective of this study was to analyze how the COVID-19 crisis has affected the determinants and predictability of the domestic credit rating issued by Fitch Ratings in Argentina. Additionally, it aims to evaluate the effects of credit rating agencies using the through-the-cycle method. Given the subjective nature of credit rating categorization, researchers have developed models for explaining and predicting credit ratings. This subjectivity is significant during economic events. Therefore, it is important to investigate whether the factors that determine and predict credit ratings remained consistent before and during the COVID-19 crisis. This paper contributes significantly to understanding how the application of the through-the-cycle method affects the determinants and predictability of credit ratings in economic crises. Theapplication of the through-the-cycle method by credit rating agencies as a criterion during the COVID-19 crisis resulted in a breakdown of the usual correlation between determinants and credit rating. Understanding whether variables are permanent or transitory components is crucial for investors and borrowers to anticipate credit rating changes during economic downturns. The dependent variables are the long-term domestic credit rating categories. The independent variables are derived from the Fitch Ratings credit rating methodology and the literature, which includes quantitative and qualitative variables. The statistical methods used are ordinal logistic regression, generalized ordinal logistic regression, and support vector machines. The COVID-19 crisis was considered a transitory event due to the application of the through-the-cycle approach by rating agencies. During the pandemic, specific determinants of credit ratings are not considered due to their transitory nature. The study identifies interest coverage ratio and competitive position as transitory components. This approach led to less predictability but a more stable credit rating.

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Impact of the COVID-19 outbreak on credit ratings: Application of the through-the-cycle approach

Terreno,

Donadille

2024

Rev. contab. finanç.

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Impacto do surto de COVID-19 nos ratings de crédito: aplicação da abordagem through-the-cycle

Terreno,

Donadille

2024

Rev. contab. finanç.

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Resumo O objetivo deste estudo foi analisar como a crise da COVID-19 afetou os determinantes e a previsibilidade do rating de crédito doméstico emitida pela Fitch Ratings na Argentina. Além disso, pretende-se avaliar os efeitos das agências de classificação de risco de crédito usando o método through-the-cycle (ao longo do ciclo). Dada a natureza subjetiva da categorização dos ratings de crédito, os pesquisadores desenvolveram modelos para explicar e prever esses ratings. Essa subjetividade é significativa durante eventos econômicos. Portanto, é importante investigar se os fatores que determinam e preveem os ratings de crédito permaneceram consistentes antes e durante a crise da COVID-19. Este artigo contribui significativamente para a compreensão de como a aplicação do método through-the-cycle afeta os determinantes e a previsibilidade dos ratings de crédito em crises econômicas. A aplicação do método through-the-cycle pelas agências de classificação de risco de crédito como um critério durante a crise da COVID-19 resultou em uma quebra da correlação usual entre os determinantes e os ratings de crédito. Entender se as variáveis são componentes permanentes ou transitórios é fundamental para que os investidores e tomadores de empréstimos antecipem as mudanças nos ratings de crédito durante as recessões econômicas. As variáveis dependentes são as categorias de rating de crédito doméstico de longo prazo. As variáveis independentes são derivadas da metodologia de rating de crédito da Fitch Ratings e da literatura, que inclui variáveis quantitativas e qualitativas. Os métodos estatísticos utilizados são a regressão logística ordinal, a regressão logística ordinal generalizada e as máquinas de vetores de suporte. A crise da COVID-19 foi considerada um evento transitório devido à aplicação da abordagem through-the-cycle pelas agências de classificação de risco de crédito. Durante a pandemia, os determinantes específicos dos ratings de crédito não são considerados devido à sua natureza transitória. O estudo identifica o índice de cobertura de juros e a posição competitiva como componentes transitórios. Essa abordagem levou a uma menor previsibilidade, mas a um rating de crédito mais estável.

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Stock Price Synchronicity and Current and Potential Credit Ratings

Cited by 2 publications

References 34 publications

Impact of the COVID-19 outbreak on credit ratings: Application of the through-the-cycle approach

Impact of the COVID-19 outbreak on credit ratings: Application of the through-the-cycle approach

Impacto do surto de COVID-19 nos ratings de crédito: aplicação da abordagem through-the-cycle

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