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Credit rating agencies and unsystematic risk: Is there a linkage?


Abad Romero, Pilar and Robles Fernández, María Dolores (2012) Credit rating agencies and unsystematic risk: Is there a linkage? [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 17, 2012, ] (Submitted)

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This study analyzes the effects of six different credit rating announcements on systematic and unsystematic risk in Spanish companies listed on the Electronic Continuous Stock Market from 1988 to 2010. We use an extension of the event study dummy approach that includes direct effects on beta risk and on volatility. We find effects in both kinds of risk, indicating that rating agencies provide information to the market. Rating actions that imply an improvement in credit quality cause lower systematic and unsystematic risk. Conversely, ratings announcements that imply credit quality deterioration cause a rebalance in both types of risk, with higher beta risk being joined with lower diversifiable risk. Although the event characteristics were not important to determine how the two types of risk reacted to rating actions, the 2007 economic and financial crises increase the market’s sensitivity to these characteristics.

Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Credit rating agencies, Rating changes, Market model, GARCH, Stock Returns, Systematic risk, Unsystematic risk
Subjects:Social sciences > Economics > Finance
Social sciences > Economics > Depressions
Social sciences > Economics > Stock exchanges
Social sciences > Economics > Econometrics
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
ID Code:15809

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Deposited On:04 Jul 2012 12:06
Last Modified:09 Jan 2014 11:45

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