Do bond credit ratings lead to excess comovement?

Louis Raffestin ()

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Abstract: We investigate whether non-fundamental comovement results from investors using credit ratings to group assets into different "styles". We find that bonds that join a new rating class start comoving more with the bonds in this class, even when fundamental factors suggest otherwise. We show that this co- movement effect varies according to the nature of the bond considered, and the modalities of the rating action. Downgrades have a larger impact than upgrades, and rating reviews matter as much as actual movements. Finally, rating changes between grades BBB and BB, which lead bonds to be reclassified as either "high-yield"or "investment grade"assets, seem to be of particular importance.

Date: 2017
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Citations: View citations in EconPapers (5)

Published in Journal of Banking and Finance, 2017, 85, pp.41-55

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01649992

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