Abstract
This study examines the stock-market reactions to public announcements (corporate bond-rating changes), in association with stock prices and investor behavior on trading volumes and trading patterns in the Korean stock market, a representative leading emerging market. Abnormal returns, abnormal volumes, and net order imbalance are estimated, using the high-quality and unique transaction data of Korean firms whose bonds have been rated by Korea Investors Service, NICE Investors Service, and Korea Ratings between 2000 and 2015. Our empirical finding shows positive (negative) abnormal stock returns around upgrades (downgrades), although stock-price reactions to downgrades are statistically more significant than those to upgrades, consistent with findings from previous studies. Significant abnormal volumes and order imbalances are found around rating changes, and the extent to which each investor group (domestic individuals, domestic institutions, and foreign investors) reacts to rating changes varies, which provides evidence for information superiority of domestic institutional investors and foreign investors in the Korean stock market.
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