Does it really hurt ? An empirical investigation of the effects of downgradings and negative watches on European bond spreads

Jean-Noël Ory (), Philippe Raimbourg and Antonio Salvi
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Jean-Noël Ory: CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine
Philippe Raimbourg: ESCP Europe - Ecole Supérieure de Commerce de Paris

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Abstract: Who feels the most pain when credit rating agencies announce a downgrading or negative watch? Does it hurt more or less, depending on the issuers original rating, the currency of the issue, or the economic activity of the issuer? Thanks to an alternative methodology, not relying on CARs but on Perron's structural break test, this article aims to highlight the effect of the rating actions of the three main agencies (Moody's, Standard and Poor's, and Fitch Ratings) on European bond markets. A logit model is used to sort out the variables influencing the probability of reaction to a rating action. The authors then measure the magnitude of the reaction according to the significant variables. And they find, in many cases, it does not hurt at all!

Date: 2011-01-01
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Published in Journal of fixed income, 2011, 20 (3), pp.86-96. ⟨10.3905/jfi.2011.20.3.086⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02312649

DOI: 10.3905/jfi.2011.20.3.086

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