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Downgrades and Outlook Changes: Evidence from the London Stock Exchange

Barreto, Kaue LU and Chen, Yi Jen LU (2020) NEKN02 20201
Department of Economics
Abstract
This study examines the effect of credit rating downgrades and negative changes in outlook on stock returns for companies in the London Stock Exchange from 2000 to 2018. Measuring the abnormal returns, we verify if the observed stock returns are significantly different from the expected returns calculated through an event study. A market model with the FTSE All-Share Index as a benchmark is used. Rating changes from the three leading rating agencies of the sector, S&P, Moody’s and Fitch, are considered. We find that downgrades do not significantly affect stock returns, but negative changes in outlook produce significant effects depending on the event window. We conclude that outlook changes are more timely and more likely to bring private... (More)
This study examines the effect of credit rating downgrades and negative changes in outlook on stock returns for companies in the London Stock Exchange from 2000 to 2018. Measuring the abnormal returns, we verify if the observed stock returns are significantly different from the expected returns calculated through an event study. A market model with the FTSE All-Share Index as a benchmark is used. Rating changes from the three leading rating agencies of the sector, S&P, Moody’s and Fitch, are considered. We find that downgrades do not significantly affect stock returns, but negative changes in outlook produce significant effects depending on the event window. We conclude that outlook changes are more timely and more likely to bring private information to the market than downgrades. (Less)
Please use this url to cite or link to this publication:
author
Barreto, Kaue LU and Chen, Yi Jen LU
supervisor
organization
course
NEKN02 20201
year
type
H1 - Master's Degree (One Year)
subject
keywords
credit rating, downgrade, outlook changes, event study
language
English
id
9015972
date added to LUP
2020-08-29 11:12:12
date last changed
2020-08-29 11:12:12
@misc{9015972,
  abstract     = {{This study examines the effect of credit rating downgrades and negative changes in outlook on stock returns for companies in the London Stock Exchange from 2000 to 2018. Measuring the abnormal returns, we verify if the observed stock returns are significantly different from the expected returns calculated through an event study. A market model with the FTSE All-Share Index as a benchmark is used. Rating changes from the three leading rating agencies of the sector, S&P, Moody’s and Fitch, are considered. We find that downgrades do not significantly affect stock returns, but negative changes in outlook produce significant effects depending on the event window. We conclude that outlook changes are more timely and more likely to bring private information to the market than downgrades.}},
  author       = {{Barreto, Kaue and Chen, Yi Jen}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Downgrades and Outlook Changes: Evidence from the London Stock Exchange}},
  year         = {{2020}},
}