Title: Credit rating announcements, trading activity and yield spreads: the Spanish evidence
Authors: Pilar Abad; Antonio Díaz; M. Dolores Robles-Fernández
Departamento de Fundamentos del Análisis Económico, Universidad Rey Juan Carlos, Paseo Artilleros s/n, 28032 Madrid, Spain and RFA-IREA.
Departamento de Análisis Económico y Finanzas, Universidad de Castilla-La Mancha, Plaza de la Universidad 1, 02071 Albacete, Spain.
Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa), Universidad Complutense de Madrid, Campus de Somosaguas, 28223 Pozuelo de Alarcón, Madrid, Spain
Abstract: We test whether different rating announcements contain pricing-relevant information and modify trading activity patterns in the Spanish corporate debt markets. We observe a significant widening of yield spreads in short- and long-term corporate debt after reviews of downgrades and negative outlook reports. Additionally, certain rating announcements encourage trading activity even when the information is not pricing-relevant. The release of information arouses investor interest for the involved securities. Thus, trading frequency increases, although larger-sized transactions, which should denote possible portfolio rebalancing, are not observed. In the short-term market, trading volumes are found to fade after reviews for downgrade.
Keywords: CRAs; credit rating agencies; rating changes; event study; yields; liquidity; trading frequency; corporate bond markets; commercial paper market; Spain; corporate debt; trading patterns; trading activity.
Int. J. of Monetary Economics and Finance, 2012 Vol.5, No.1, pp.38 - 63
Submission date: 24 Sep 2010
Date of acceptance: 10 Feb 2011
Available online: 26 Dec 2011