Moody’s credit ratings and the stock market performance of Portuguese rated firms

Luis Pacheco

No 22/2011, Working Papers from Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE)

Abstract: Never has the issue of sovereign credit ratings attracted such an interest by policy and opinion makers, bankers and journalists, or even the public opinion, as witnessed in the last couple of years. In spite of being accused of contributing to the instability of financial markets, credit rating agencies have undoubtedly a role in financial markets, affecting its performance and guiding investor’s decisions. This paper analyzes the impact of the announcement of changes in Moody’s ratings over the performance of a set of rated firms quoted in the Portuguese stock market. Following an event study methodology, we collect ratings and outlook announcements by that major credit agency over the period 2006-2011. We find a significant response of share prices to changes in ratings, with that response anticipating the announcement. We think that could be explained by previous sovereign rating changes or to the contagion effects of a bearish market. When analyzing the period after January 2010, we observe a stronger reaction to announcements, which is understandable given the greater influence and market sensitivity to rating agencies.

Keywords: Credit Rating Agencies; Event Studies; Stock Market; Moody’s; Sovereign Debt Crisis; Portugal (search for similar items in EconPapers)
JEL-codes: E44 G10 G14 G24 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-12-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: MOODY S CREDIT RATINGS AND THE STOCK MARKET PERFORMANCE OF PORTUGUESE RATED FIRMS (2012)
Working Paper: Moody’s credit ratings and the stock market performance of Portuguese rated firms (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:cigewp:2011_022

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