 The credit risk–return puzzle: Impact of credit rating announcements in Australia and JapanEmawtee Bissoondoyal-Bheenick and Robert Brooks Pacific-Basin Finance Journal, 2015, vol. 35, issue PA, 37-55 Abstract: Traditional asset pricing models postulate that high risk investments are usually associated with higher returns. However, this does not hold in the relationship between credit risk and return. There is a known credit risk–return puzzle, which highlights a negative relationship between credit risk and the stock market returns. The objective of this study is to assess the puzzling credit risk–return relationship of stocks; in particular, comparing the stock returns of high versus low credit risk firms, as measured by credit ratings from Standard and Poor's in Australia and Japan for a period from January 1990 to June 2012. Our results indicate that the credit risk–return puzzle exists in both Japan and Australia. However, it seems that the credit risk–return anomaly is explained by the downgrade announcements in the market and hence we conclude that downgrade announcements of a firm have a significant impact on the cross section of returns. Keywords: Credit risk–return puzzle; Credit ratings; Downgrades; Economic cycles (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:35:y:2015:i:pa:p:37-55 DOI: 10.1016/j.pacfin.2014.09.001 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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