Risk and Return Around Bond Rating Changes: New Evidence From the Spanish Stock Market | Zendy

AbadRomero Pilar | Zendy; RoblesFernandez M. Dolores | Zendy

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Risk and Return Around Bond Rating Changes: New Evidence From the Spanish Stock Market

Author(s) -

AbadRomero Pilar,

RoblesFernandez M. Dolores

Publication year - 2006

Publication title -

journal of business finance and accounting

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.282

H-Index - 77

eISSN - 1468-5957

pISSN - 0306-686X

DOI - 10.1111/j.1468-5957.2006.00608.x

Subject(s) - systematic risk , shareholder , economics , bond credit rating , stock market , event study , stock (firearms) , financial economics , bond , corporate bond , excess return , redistribution (election) , monetary economics , actuarial science , credit risk , finance , corporate governance , mechanical engineering , paleontology , context (archaeology) , horse , engineering , credit reference , biology , politics , political science , law

This study analyzes the effect of corporate bond rating changes on stock prices in the Spanish stock market. We explore their effects on excess of returns and systematic risk. Rating changes by Moody's, Standard and Poor's and FitchIBCA are analyzed. On an efficient market, these changes will only have some effect if they contain some new information or if they are associated to a redistribution of wealth between shareholders and bondholders. We use an extension of the event study dummy approach. Our results support the redistribution of wealth hypothesis in the abnormal returns behavior. We also find that changes in both directions cause a rebalancing effect in the total risk of the firm, with significant reductions on their systematic component.

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