The Impact of Rating Changes in Australian Financial Markets

Adam Creighton, Luke Gower and Anthony Richards
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Adam Creighton: Reserve Bank of Australia
Luke Gower: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper tests the response of bond yield spreads and equity prices to credit rating changes in the Australian financial market. Unlike some earlier studies for foreign markets, we find evidence that both yield spreads and equity prices move in the ‘expected’ direction following rating changes. However, the impacts are relatively small. In addition, in the case of downgrades and equity returns, we find evidence of large movements in prices in the six months prior to the rating announcement, suggesting that rating changes are largely validating information that has already been factored into equity prices. We also find that announcement effects are larger for small firms, for re-ratings from investment to speculative grade, and for cases where agencies have not indicated that the rating is under review.

Keywords: credit rating agencies; rating changes; event study; Australia (search for similar items in EconPapers)
JEL-codes: G12 G14 G20 (search for similar items in EconPapers)
Date: 2004-03
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-fmk
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Citations: View citations in EconPapers (5)

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https://www.rba.gov.au/publications/rdp/2004/pdf/rdp2004-02.pdf (application/pdf)

Related works:
Journal Article: The impact of rating changes in Australian financial markets (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2004-02

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