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Abnormal returns of credit rating announcements
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
2018 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

This thesis studies abnormal returns of credit rating changes. The purpose is to examine whether downgrades and upgrades lead to abnormal stock market returns. German data is used from the time period 1998-2018. This thesis examines ratings from all large credit rating agencies. These are Standard and Poor’s, Moody’s and Fitch. There is a total of 362 company rating changes during this period. After sorting the data, the remaining changes to be studied are 143 downgrades and 93 upgrades. An event study approach is used to examine changes during the whole period, combined with a comparison before and after the financial crisis in 2008. The comparison is interesting due to the criticism towards credit rating agencies before and during the crisis. Downgrades do not show any significant abnormal returns. Upgrades show positive (negative) abnormal return 15 days before (after) the announcement. One potential explanation is that upgrades might already be anticipated by the market participants and subsequently followed with an effect of overreaction. There is no significant change close to the event date. The comparison between before and after the crisis does lack significance to prove differences.

Place, publisher, year, edition, pages
2018.
Keywords [en]
Abnormal returns - Credit rating changes - Financial crisis - Event study
National Category
Economics
Identifiers
URN: urn:nbn:se:uu:diva-355274OAI: oai:DiVA.org:uu-355274DiVA, id: diva2:1228255
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Available from: 2018-06-29 Created: 2018-06-27 Last updated: 2018-07-02Bibliographically approved

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