Work detail

Does the Role of the Rating Prior to the Announcement Explain Different Influence of Credit Rating Downgrades and Upgrades on Stock Prices?

Author: Mgr. Jan Sedlář
Year: 2015 - summer
Leaders:
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 123
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/138378/
Abstract: The thesis examines whether the role of credit rating prior to the announcement of
credit rating change is the neglected factor explaining in large extent the paradox
investigated in prior papers that downgrades influence the stock prices of company but
upgrades not. It is motivated by the notion that credit rating changes from low credit
rating classes influence the stock price of company more distinctively than changes
from higher credit rating classes and there is proportionally more downgrades from
low credit rating classes than upgrades. The large sample of credit rating changes
including proportionally more upgrades from low credit rating classes than
downgrades is collected and the results suggesting the influence of downgrades on
stock prices of company and any influence of upgrades persist. Furthermore when
controlled for credit rating prior to the announcement of credit rating change,
magnitude of credit rating change, crossing the investment-speculative barrier, credit
rating changes within and across credit rating categories, consecutive credit rating
changes in the same direction and industry sector of issuer all the results are consistent
with the original conclusions proposing significant stock price reaction to
announcements of credit rating downgrades and no stock price response to
announcements of upgrades.

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