Abstract
We study the rating impact on American stock market during crisis period by distinguishing expected versus surprise announcements. If unexpected ratings generate stronger reaction than expected ones, which means that rating agencies maintain credibility and influence on investors’ decisions. Otherwise, they have to revise their methodologies and procedures in order to recover place on financial markets. Results show that during crisis period market reaction to bad and neutral expected rating announcements is negative and more accentuated than reaction to surprise announcements; on contrary to good news that produce a short positive impact when they are unexpected and are not perceived by the market otherwise. Results reflect once more market distrust to rating agencies and faith loss towards announcements.
Highlights
This paper examines the informational content of rating announcement during crisis periods
We study the differential impact of surprise versus expected rating announcements on stock prices during 2008 financial crisis
We calculate for each announcement the cumulative abnormal return (CAR) over 120 listing days preceding the rating event and test for its significance
Summary
This paper examines the informational content of rating announcement during crisis periods. Previous studies considered the informational content by examining the impact of rating announcements on stock prices. These studies did not consider the differential impact of. 2018, Vol 8, No 3 surprise versus expected announcements. In one hand, expected information contains data which already have been incorporated by investors and may generate reactions prior to official announcement. Surprise notations provide new information unknown by investors and not yet integrated into stock prices (Dynkin and al., 2002). Surprise ratings are expected to generate stronger reaction than anticipated ones
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