Indian Journal of Research in Capital Markets

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Impact of Bond Rating Changes on Stock Prices in India : Rating Agency Wise Analysis


Affiliations
1 Assistant Professor, Department of Management Studies, VSK University, Bellary - 583 104, Karnataka, India
2 Professor & Dean, Department of Management Studies, VSK University, Bellary - 583 104, Karnataka, India
3 Research Scholar, Christ University, Bengaluru - 560 029, India

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In this paper, we examined the impact of bond rating change announcement on the stock prices by computing the abnormal return of a security. The sample size of our study was 167 rating change announcements of four credit-rating agencies during the years 1991 to 2015. We used the event study methodology to estimate the expected return from a security. The study found average abnormal stock returns associated with the event, however, they were quite insignificant when tested with t -statistics, which revealed that credit ratings change announcements (either upgraded or downgraded news) carried a very minimal impact on the stock prices in the Indian context. The run test described that the average abnormal returns found occurred randomly.

Keywords

Abnormal Returns, Average Abnormal Returns, Event Study, Credit Rating Changes

C12, G14, G24

Paper Submission Date : October 1, 2015 ; Paper sent back for Revision : December 11, 2015 ; Paper Acceptance Date : December 25, 2015.

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  • Impact of Bond Rating Changes on Stock Prices in India : Rating Agency Wise Analysis

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Authors

H. N. Archana
Assistant Professor, Department of Management Studies, VSK University, Bellary - 583 104, Karnataka, India
S. Jayanna
Professor & Dean, Department of Management Studies, VSK University, Bellary - 583 104, Karnataka, India
Veerappayya Hiremath
Research Scholar, Christ University, Bengaluru - 560 029, India

Abstract


In this paper, we examined the impact of bond rating change announcement on the stock prices by computing the abnormal return of a security. The sample size of our study was 167 rating change announcements of four credit-rating agencies during the years 1991 to 2015. We used the event study methodology to estimate the expected return from a security. The study found average abnormal stock returns associated with the event, however, they were quite insignificant when tested with t -statistics, which revealed that credit ratings change announcements (either upgraded or downgraded news) carried a very minimal impact on the stock prices in the Indian context. The run test described that the average abnormal returns found occurred randomly.

Keywords


Abnormal Returns, Average Abnormal Returns, Event Study, Credit Rating Changes

C12, G14, G24

Paper Submission Date : October 1, 2015 ; Paper sent back for Revision : December 11, 2015 ; Paper Acceptance Date : December 25, 2015.