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European Rating Actions, Investor Reaction, and Bond Spread Volatility
Author(s) -
Ory JeanNoël,
Raimbourg Philippe
Publication year - 2015
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/ecno.12038
Subject(s) - downgrade , credit rating , volatility (finance) , euros , bond , event study , business , monetary economics , economics , financial economics , actuarial science , finance , paleontology , philosophy , context (archaeology) , computer security , computer science , humanities , biology
This paper uses unit root tests that allow for structural breaks in order to examine the impact of ratings announcements on European bond credit spreads. In general, there are no noticeable reactions to announcements for issues in euros, which comes in contrast to the results of previous studies on US corporate bonds. However, we have noticed a reaction to rating actions for issues in sterling. In the case of a reaction to a downgrade or a negative watch, investor reaction generally occurs before the rating announcement, and negative watches are anticipated by investors a little more frequently than downgrades. For this type of event, we see a decrease in spread volatility after the rating announcements, as if the action of the rating agency confirms the informed investors’ perception of default risk, and in doing so, stabilizes spreads and reduces spread volatilities.