Abstract
We empirically test the relation between stock volatility (market risk) and credit ratings (credit risk) using KRX listed firms. We find a negative relation between stock volatility and credit ratings. The results suggest that as stock price volatility increases, a firm is more likely to experience a credit rating decrease. After dividing our sample into investment and non-investment grade groups, we find the relation between volatility and a credit rating decrease diminishes in the investment grade sample compared to the non-investment grade sample. Overall, we find investment grade firms are more likely to absorb shocks associated with speculative investment/divestment compared to price sensitive non-investment grade firms.
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