Do market-based indicators anticipate rating agencies? Evidence for international banks

Antonio Di Cesare ()

No 593, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper analyzes the ability of credit default swap spreads, bond spreads and stock prices to anticipate the decisions of the main rating agencies, for the largest international banks. Conditional on negative rating events, all the three indicators show signi�cant abnormal changes before both announcements of review and actual credit rating changes, but rating actions still seem to convey new information to the market. Results for positive rating events are less clear-cut with the market indicators generally showing abnormal behaviors only in conjunction with the events. As for the predictive power of the �nancial indicators examined, the CDS market is particularly useful for negative events and stock prices for positive events. However, all indicators also send many false signals and are to be interpreted with care.

Keywords: Credit derivatives; credit default swaps; option-adjusted spreads; credit ratingss (search for similar items in EconPapers)
JEL-codes: G14 G21 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-ban, nep-fin and nep-fmk
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Citations: View citations in EconPapers (14)

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Journal Article: Do Market‐based Indicators Anticipate Rating Agencies? Evidence for International Banks (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_593_06

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