1978 |
Pinches & Singleton |
1959-72; Moody’s; 207 companies; monthly abnormal return between [-30,12] |
Anticipation of the rating changes, there is no abnormal reaction after the announcement. |
1982 |
Griffin & Sanvicente |
1960-75; Moody’s and S&P; 180 rating changes; monthly abnormal return between [-11,1] |
There is no anticipation, but there is a negative reaction after downgrades. |
1986 |
Holthausen & Leftwich |
1977-82; Moody’s and S&P; 1014 rating changes; 256 S&P Credit Watch additions; daily abnormal return between [-300,60] |
Significant negative reaction after downgrades, not significant for upgrades. |
1987 |
Glascock, Davidson, & Henderson |
1977-81; Moody’s; 162 rating changes; daily abnormal return between [-90,90] |
Significant negative abnormal return before and around downgrades, reversed after announcement. |
1992 |
Hand, Holthausen, & Leftwich |
1977-82 / 1981-83; Moody’s and S&P; 1100 rating changes and 250 S&P Credit Watch additions |
Significant negative abnormal return for S&P Credit Watch downgrades and unexpected additions, no significant abnormal return for upgrades. |
1993 |
Goh & Ederington |
1984-86; Moody’s; daily abnormal return between [-30,30] |
Significant negative abnormal return for downgrades due to profit deterioration, positive abnormal return for downgrades due to higher leverage. |
1997 |
Followill & Martell |
1985-88; Moody’s; 64 reviews and effective rating changes; daily abnormal return between [-5,5] |
Significant negative feedback from downgrade revisions, negligible abnormal performance around effective downgrades. |
2001 |
Dichev & Piotroski |
1970-97; Moody’s; 4727 rating changes; abnormal daily return; long term |
Significant negative abnormal return during the first month after a downgrade, there is no significant abnormal return for upgrades. |
2003 |
Vassalou & Xing |
1971-99; Moody’s; 5034 rating changes; abnormal monthly return on portfolios between [-36,36] |
Stock returns on rating-related event studies should be adjusted for size, book-to-market, credit risk, and credit risk variance over the period; higher returns are associated with higher credit risks. |
2004 |
Norden & Weber |
2000-02; Moody’s, S&P, and Fitch; 166 reviews and 231 effective rating changes; daily abnormal return between multiple time intervals |
Anticipation of downgrades; significant negative abnormal return after revisions for downgrades; past rating and rating following a change are significant in explaining the abnormal return. |
2004 |
Linciano |
1991-2003; Moody’s, S&P, and Fitch; 141 Credit Watch additions and 158 effective rating changes; daily abnormal return between [-20,20] |
Significant abnormal returns following downgrades and Credit Watch additions to downgrades, apparently conditioned by the rating change. |
2006 |
Jorion & Zhang |
1996-2002; Moody’s and S&P; 2356 rating changes; daily abnormal return between [-3,3] |
The effect of rating changes on the share price depends on the rating before and after the change, the effect being greater the lower the previous rating. |
2008 |
Benjamin EE |
1991-2007; Moody’s and S&P; 4039 rating changes and 3287 Credit Watch additions; daily abnormal return between [-1,1] |
Significant long-term negative abnormal return for downgrades, but lower for emerging countries. |
2013 |
Freitas & Minardi |
2000-09; Moody’s and S&P; 221 rating changes and 49 Credit Watch additions; daily abnormal return between [-14,30] |
Anticipation and significant negative abnormal return for downgrades, insignificant for upgrades. |
2013 |
Avramov et al. (2013 |
1985-2008; 4953 observations; ranking of portfolio results composed of long-short strategy in price anomalies |
Positive results in lower-rated short-selling strategies and these momentum gains are higher for lower-rated companies in monthly-adjusted strategies. |
2014 |
Friewald et al. |
2001-10; 491 firms using CDS spread change in default risk proxy |
By forming portfolios buying companies with high credit risk and selling companies with low credit risk, we get a positive alpha after controlling for standard risk factors. |