Credit Rating Announcements, Trading Activity and Yield Spreads: The Spanish Evidence

Pilar Abad, Antonio Diaz () and M. Dolores Robles-Fernandez ()
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Antonio Diaz: Universidad Castilla la Mancha
M. Dolores Robles-Fernandez: Instituto Complutense de Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid, https://www.ucm.es/icae
Authors registered in the RePEc Author Service: M. Dolores Robles Fernandez

No 2011-36, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: We test whether or not different rating announcements contain pricing-relevant information and modify trading activity patterns in the Spanish commercial paper and corporate bond markets. We observe a statistically significant widening of yield spreads in both segments of the corporate debt market after reviews of downgrades and negative outlook reports. In addition, we find that certain rating announcements encourage trading activity even when the information is not pricing-relevant. The release of information arouses investor interest for the involved securities. Thus, trading frequency increases, although larger-sized transactions, which should denote possible portfolio rebalancing, are not observed. In the commercial paper note market, we also find that that trading volumes fade away after reviews for downgrade. Investors seem to prefer reducing the trading of these short-term securities to liquidating their positions.

Keywords: Credit rating agencies; Rating changes; Event study; Yields; Liquidity; Trading frequency; Corporate bond market; Commercial paper market. (search for similar items in EconPapers)
JEL-codes: C34 G12 G14 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011
New Economics Papers: this item is included in nep-mst
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Journal Article: Credit rating announcements, trading activity and yield spreads: the Spanish evidence (2012)
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