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Credit Rating Announcements, Trading Activity and Yield Spreads: The Spanish Evidence

Abad Romero, Pilar and Díaz, Antonio and Robles-Fernandez, M. D. (2011) Credit Rating Announcements, Trading Activity and Yield Spreads: The Spanish Evidence. [Working Paper or Technical Report]

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Abstract

We test whether or not different rating announcements contain pricing-relevant information and modify trading activity patterns in the Spanish commercial paper and corporate bond markets. We observe a statistically significant widening of yield spreads in both segments of the corporate debt market after reviews of downgrades and negative outlook reports. In addition, we find that 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 commercial paper note market, we also find that that trading volumes fade away after reviews for downgrade. Investors seem to prefer reducing the trading of these short-term securities to liquidating their positions.

Item Type:Working Paper or Technical Report
Additional Information:Jel Classification: G12, G14, C34.
Uncontrolled Keywords:Credit rating agencies, Rating changes, Event study, Yields, Liquidity, Trading frequency, Corporate bond market, Commercial paper market.
Subjects:Social sciences > Economics > Finance
Social sciences > Economics > Econometrics
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico
Volume:2011
Number:36
ID Code:13979
Deposited On:05 Dec 2011 08:59
Last Modified:15 Nov 2013 10:49

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