Rating agencies play an important role on the capital markets; however, during the financial crisis 2007-2009 people began to question how good their assessments of credit quality really are. In my study, I empirically examine the effect of rating announcements from Standard & Poor’s on the Credit Default Swap (CDS) Market. It contributes to the field of rating agencies’ performance measurement. Based on Event Study Methodology and recent CDS data, I detect virtually no significant abnormal spread
change at the announcement date neither for downgrades nor upgrades. However, the CDS show some anticipation prior to the event especially for downgradings. Considering the rating date, I find evidence for an asymmetric reaction where downgrades cause stronger movement in the spreads. As a result, it seems as if rating changes do not convey a great part of new information to the markets. At the same time, the significant anticipation indicates that the CDS market processes information more efficiently.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Rating Agencies and the Market for Credit Risk
- Previous Literature and Hypotheses
- Data
- Ratings
- Credit Default Swap Spreads.
- Methodology
- Framework.
- Hypothesis Testing
- Empirical Results
- Event Studies
- Regressions
- Discussion
- Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This study aims to empirically examine the effect of rating announcements from Standard & Poor's on the Credit Default Swap (CDS) Market. It contributes to the field of rating agencies' performance measurement.
- Assessing the impact of rating announcements on CDS spreads.
- Examining the market's reaction to rating upgrades and downgrades.
- Investigating whether rating agencies convey new information to the market.
- Comparing the efficiency of the CDS market in processing information compared to rating agencies.
- Exploring the potential for market-based indicators to assess credit risk.
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the study's context, outlining the importance of rating agencies in capital markets and their controversial role during the financial crisis. It highlights the debate surrounding their ability to accurately assess creditworthiness and convey new information to the market.
- Rating Agencies and the Market for Credit Risk: This chapter delves into the role of rating agencies in the market for credit risk, discussing their influence on investors' decisions and their responsibility for providing accurate ratings. It also introduces Credit Default Swaps (CDS) as an alternative market-based indicator of credit risk.
- Previous Literature and Hypotheses: This chapter reviews existing literature on rating agencies and their impact on the market, identifying key research questions and formulating hypotheses to be tested in the study. It highlights previous research findings and their implications for understanding the relationship between rating announcements and CDS spreads.
- Data: This chapter presents the data used in the study, outlining the sources of information for both ratings and CDS spreads. It describes the specific data sets utilized, including their timeframes and coverage.
- Methodology: This chapter explains the methodological approach employed in the study, detailing the framework used for analyzing the data and the hypothesis testing techniques applied. It describes the specific statistical methods and procedures employed to investigate the relationship between rating announcements and CDS spreads.
- Empirical Results: This chapter presents the findings of the study, discussing the results obtained from the event studies and regressions conducted to assess the impact of rating announcements on CDS spreads. It highlights the key findings and their implications for understanding the relationship between rating agencies and the market.
Schlüsselwörter (Keywords)
The main keywords and focus topics of this study include: rating agencies, credit quality, credit default swaps (CDS), event study methodology, market efficiency, information asymmetry, financial crisis, regulation.
- Citation du texte
- Jan Klobucnik (Auteur), 2010, Do Rating Announcements convey new Information?, Munich, GRIN Verlag, https://www.grin.com/document/153961
