This paper analyzes daily Spanish corporate bond and commercial paper note behavior around the time of corporate bond rating action announcements by the three largest international rating agencies. We analyze the effects of actual rating changes, watch-listings (warnings of possible rating changes) and outlook notices (trend in the future) on corporate fixed income performance.
We analyze a wide set of measures of return, yield spread and liquidity. On an efficient market, these announcements will only have some significant effect if they contain some new information. In the bonds sample, we find significant effects of rating actions on both prices and trading activity. In the commercial paper notes sample, the only statistically significant impact is on liquidity.
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