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The effect of credit rating announcements in the Nordic stock market

Magnúsdóttir, Ingibjörg LU and Randefelt, Lisbet LU (2016) NEKN02 20161
Department of Economics
Abstract
Credit rating agencies’ influence on capital markets has been a highly debated topic in the last decades, as their power and impact have not been established with clarity. Different characteristics have been found especially between larger and smaller markets, which makes it interesting to investigate how the Nordic market as a smaller market reacts to credit changes. This study investigates how the Nordic market, consisting of the largest and most traded stocks in Sweden, Norway, Denmark and Finland, is influenced by credit rating changes. An event study approach is used to examine how the Nordic stock market behaves towards credit rating announcements of S&P Global Ratings by using a sample of 135 credit ratings taking place between... (More)
Credit rating agencies’ influence on capital markets has been a highly debated topic in the last decades, as their power and impact have not been established with clarity. Different characteristics have been found especially between larger and smaller markets, which makes it interesting to investigate how the Nordic market as a smaller market reacts to credit changes. This study investigates how the Nordic market, consisting of the largest and most traded stocks in Sweden, Norway, Denmark and Finland, is influenced by credit rating changes. An event study approach is used to examine how the Nordic stock market behaves towards credit rating announcements of S&P Global Ratings by using a sample of 135 credit ratings taking place between January 2000 and March 2016. In order to estimate abnormal stock returns the market model is used, upon which a significance test is applied. In conclusion, the results suggest that the stock market anticipates a change one day prior to the actual happening where the effect of a rating vanishes after a few days of the actual rating change. The abnormal returns are significant towards a downgrade, yet no significance can be seen from an upgrade. Further, when observing how the stock market reacts towards a downgrade after the financial crisis, an unexpected find showed that the market reacted positively towards a downgrade after the financial crisis being previously negative. (Less)
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author
Magnúsdóttir, Ingibjörg LU and Randefelt, Lisbet LU
supervisor
organization
course
NEKN02 20161
year
type
H1 - Master's Degree (One Year)
subject
keywords
Nordic countries, credit rating agencies, abnormal returns, event study.
language
English
id
8876309
date added to LUP
2016-06-13 14:13:30
date last changed
2016-06-13 14:13:30
@misc{8876309,
  abstract     = {Credit rating agencies’ influence on capital markets has been a highly debated topic in the last decades, as their power and impact have not been established with clarity. Different characteristics have been found especially between larger and smaller markets, which makes it interesting to investigate how the Nordic market as a smaller market reacts to credit changes. This study investigates how the Nordic market, consisting of the largest and most traded stocks in Sweden, Norway, Denmark and Finland, is influenced by credit rating changes. An event study approach is used to examine how the Nordic stock market behaves towards credit rating announcements of S&P Global Ratings by using a sample of 135 credit ratings taking place between January 2000 and March 2016. In order to estimate abnormal stock returns the market model is used, upon which a significance test is applied. In conclusion, the results suggest that the stock market anticipates a change one day prior to the actual happening where the effect of a rating vanishes after a few days of the actual rating change. The abnormal returns are significant towards a downgrade, yet no significance can be seen from an upgrade. Further, when observing how the stock market reacts towards a downgrade after the financial crisis, an unexpected find showed that the market reacted positively towards a downgrade after the financial crisis being previously negative.},
  author       = {Magnúsdóttir, Ingibjörg and Randefelt, Lisbet},
  keyword      = {Nordic countries,credit rating agencies,abnormal returns,event study.},
  language     = {eng},
  note         = {Student Paper},
  title        = {The effect of credit rating announcements in the Nordic stock market},
  year         = {2016},
}