Impact of Rating Changes on Stock Prices

International Journal of Economics and Management Studies

© 2017 by SSRG - IJEMS Journal

Volume 4 Issue 2

Year of Publication : 2017

Authors : Dr Vandana Gupta

10.14445/23939125/IJEMS-V4I2P102

How to Cite?

Dr Vandana Gupta, "Impact of Rating Changes on Stock Prices," SSRG International Journal of Economics and Management Studies, vol. 4,  no. 2, pp. 8-17, 2017. Crossref, https://doi.org/10.14445/23939125/IJEMS-V4I2P102

Abstract:

The objective of this study is to analyze whether the credit rating downgrades of debt instruments of banks has an impact on the market price of its stocks. The methodology adopted is an “event study methodology” where the author had analyzed the returns of the stock 45 days before and after the rating change announcement; in addition to that “average abnormal returns” (difference between actual return and market model returns) determined aims to provide a clearer picture regarding the impact of rating change announcement. The research findings of the study reveal that the returns of the banking stocks were impacted by the release of rating downgrade information. The stocks showed significant negative returns after the announcement when in fact the market showed increased positive returns, clearly showing the impact. Also the count of average abnormal returns days showed an increased count of negative returns days during and after the announcement.

Keywords:

credit rating, banks, abnormal return, announcement.

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