Good news, bad news and rating announcements: An empirical investigation

Koresh Galil, Gil Soffer

Research output: Contribution to journalArticlepeer-review

59 Scopus citations

Abstract

In this paper we employ a new approach to test the contribution of information in rating announcements. This is the first study to test and corroborate how the CDS market responds to rating actions after controlling for the presence of concurrent public and private information. We show that since the clustering of rating announcements characterizes economically significant developments, the common practice of using " uncontaminated" samples underestimates market response. As in previous studies, we find that the market response to bad news is stronger than to good news. Nevertheless, bad news and negative rating announcements tend to cluster. Therefore, the residual contribution of negative rating announcements is small and in some cases insignificant. Positive rating announcements are less frequent and less clustered, though their residual contribution is still significant.

Original languageEnglish
Pages (from-to)3101-3119
Number of pages19
JournalJournal of Banking and Finance
Volume35
Issue number11
DOIs
StatePublished - 1 Nov 2011

Keywords

  • Credit default swaps
  • Credit rating
  • Credit risk
  • Event study

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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