Rating Announcements Research Articles

Anticipation of reaction of stock markets to anticipated rating announcements by the market in a crisis context and investor behaviour: The case of MENA countries

Anticipation of reaction of stock markets to anticipated rating announcements by the market in a crisis context and investor behaviour: The case of MENA countries

How do the gold intra-day returns and volatility react to monetary policy shocks?

In this paper, we use high frequency data to obtain novel asymmetry results in the short-term response of gold to monetary policy shocks. The gold returns and volatility 5 min after the shock are found to be more sensitive to looser than tighter FOMC rate announcement changes. This is explained by the increased appeal of gold during uncertainties and as a safe haven following negative monetary shocks. The rally in gold prices is construed by the market as an increase in the demand for safe haven assets, and hence, a stronger response in gold returns and volatility ensues. Moreover, we find that the gold price adjustment and its volatility adjustment continue for longer than five minutes after the FOMC shock. This suggests potential short-term inefficiencies in the gold market concerning the short-term rates.

Effect of Interest Rate Changes on Stock Market Volatility in Congo

Purpose: The aim of the study was to assess the effect of interest rate changes on stock market volatility in Congo. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: Changes in interest rates have a notable impact on stock market volatility. When central banks adjust interest rates, it influences investor sentiment and economic forecasts. Typically, an increase in interest rates makes borrowing more expensive, which can dampen corporate profits and economic growth, leading to higher market volatility as investors reassess the value of stocks. Conversely, a decrease in interest rates generally lowers borrowing costs, potentially boosting corporate earnings and economic expansion, which can initially reduce market volatility. However, the long-term effects might differ as lower rates can also lead to overvaluation concerns, eventually increasing volatility. Additionally, interest rate changes signal monetary policy shifts and broader economic conditions, further influencing investor behavior and stock market dynamics. Overall, interest rate fluctuations are a critical factor contributing to stock market volatility through their direct and indirect effects on economic activities and investor perceptions. Implications to Theory, Practice and Policy: Efficient market hypothesis, portfolio theory and behavioral finance theory may be used to anchor future studies on assessing the effect of interest rate changes on stock market volatility in Congo. For practical implications, investors and financial institutions should develop risk management strategies that account for the short-term volatility spikes following interest rate announcements. From a policy perspective, policymakers should consider the lagged effects of interest rate changes when formulating monetary policy to ensure smoother market transitions.

The effects of policy rate announcements on the exchange rates

Purpose- Exchange rate is the value of a country's national currency against foreign national currencies. In this context, the exchange rate is considered an important macroeconomic indicator in evaluating the country's economy. The failure to control the exchange rate may damage economy significantly. It is possible to understand this from the 2001 crisis in Turkey, known as 'Black Wednesday', and the foreign exchange crisis that started in Thailand in 1997 and affected many East Asian countries. Interest rate is one of the critical determinants affecting the exchange rates. Therefore, changes in interest rates are expected to affect the level of exchange rates. When there is an increase in interest rates, foreign capital flow is expected for that particular country. Hence, a decrease in exchange rates is expected for the excess capital flows. This study aims to analyze the relationship between exchange rates and interest rates, considering the last 10 announcements of the interest policy of the Central Bank of the Republic of Turkiye. These announcements are between January 19, 2023 and October 26, 2023. The study used the TL/USD exchange rates and 10-year government bond interest rates to measure the relationship in between these two variables. Methodology-The aim of this study is to analyze the relationship between the dollar exchange rate and government bond interest rates for Turkiye. For this purpose, data is collected for the days when the last 10 policy rates published by the CBRT were announced. Data is obtained investing.com. Vector Autoregression (VAR) is used to measure the relationship in between two variables. The VAR system is based on empirical regularities embedded in the data. The VAR model may be viewed as a system of reduced form equations in which each of the endogenous variables is regressed on its own lagged values and the lagged values of all other variables in the system. Vector Autoregressive models are widely used in time series research to examine the dynamic relationships exist in between variables that interact with one another. In addition, VAR models are viable forecasting tools used often by macroeconomic or policy-making institutions. . In this study first, the stationary levels of the variables are determined by using Unit Root Test. Second, pre-tests of autocorrelation, heteroscedasticity and normality are conducted for the validity of the VAR model. Third, the short-term relationship between variables is tested by using VAR Granger Causality Test. Fourth, VAR analysis is utilized by applying Impulse-Response Analysis and Variance Decomposition Analysis . And finally, the long-term relationship between variables is tested by using Johansen Cointegration Test. Vector Autoregressionmodel is employed in this study. Findings- According to the results of Granger Causality test, government bond interest rates strongly affect the changes of exchange rate. However, there is no causality from exhange rates to interest rates. Therefore, the changes of interest rates are the main determinants of the changes of exchange rates in this short period. The results of Impulse-Response Test show that an unexpected shock (an unexpected increase) in government bond interest rates affects the exchange rates and increases it significantly. More, an unexpected increase in the exchange rates causes the interest rates on government bond to increase. The results of the variance decomposition test show that 50% of the change in the variance of the exchange rates in the first period is explained by changes in bond interest while 30% of the change in the variance of bond interest rates is explained by the changes in exchange rates. The results of Johansen cointegration test support that there is a stable long-term relationship between dollar exchange rates and government bond interest rates. Conclusion-This study focuses on the relationship between government bond interest rates and the dollar exchange rates in Turkiye for the last 10 policy interest rates announcements by Cenral Bank of Turkiye. In summary, the changes in interest rates on bonds affect the changes in exchange rates more. Data for the days that the CBRT issued the last ten policy rates is gathered for this purpose. The association between two variables is measured using Vector Autoregression (VAR). According to overall results, the changes in interest rates on bonds affect the changes in exchange rates more. Keywords: Policy rate, exchange rate, interest rate, Turkiye, Granger Causality, VAR model JEL Codes: E40, E50, C10, C58

Information effect of credit rating announcements in transition economies

This paper analyzes the credit rating markets in transition economies of Central and Eastern Europe and the former USSR, an important economic area and countries that are quickly developing into significant economic players. Using a sample of 969 credit rating announcements from 1998 to 2021, we examine the wealth effects of the credit rating announcements and compare the findings to the existing international evidence. We find that informativeness of rating announcements in transition economies decreases after the first enforcement of insider trading laws. We also find different market reaction to rating announcements in EU and non-EU countries. Our findings suggest that this region is still evolving and part of it still has characteristics of other emerging markets.

The impact of United States macroeconomic news announcements on the Johannesburg Stock Exchange

Orientation: Macroeconomic news announcement poses a risk to stock returns, especially that of United States (US) on emerging markets because of globalisation.Research purpose: The purpose was to investigate the impact that US macroeconomic news announcements have on the Johannesburg Stock Exchange (JSE).Motivation for the study: Investment in financial markets is volatile. Globalisation means that greater economies’ macroeconomic news announcements could impact emerging financial markets. Knowing which announcements have an influence could improve investment decisions.Research design, approach and method: This study is qualitative, following secondary data analysis. Analysis was carried out using volatility modelling, paired with an event study to add robustness.Main findings: The generalised autoregressive conditional heteroskedastic (GARCH) models indicated that US macroeconomic news announcements made in relation to unemployment were statistically significant, with a negative impact on the JSE. This was supplemented by the event study in which interest rate announcements that were made in August 2008 (during the global financial crisis) were found to have a statistically significant impact on the JSE. The coronavirus disease 2019 (COVID-19) pandemic did not appear to have a statistically significant impact in the results obtained from the event study.Practical/managerial implications: Investment industry professionals and policymakers should consider unemployment announcements from the US to enhance investment decisions while managing stock market volatility.Contribution/value-add: The results make a novel contribution towards the findings during the initial COVID-19 period and generalisability of the method as well as the theoretical expansion of the theoretical application of globalisation on stock markets.

Information flow and credit rating announcements

We employ the implied volatility spread (IVS) and the short lending fee as measures of private information conveyed by their respective markets. Using issuer credit rating announcements as an informational event, we find that both IVS and the short fee have significantly higher predictive power for returns on event days versus non-event days. Both also predict the direction and magnitude of credit rating changes. Consistent with the linkage between the short sale and options markets, in models with both explanatory variables, the short fee remains significant in all specifications, while IVS loses explanatory power.

Measuring Communication Quality of Interest Rate Announcements

Abstract We use text-mining techniques to measure the accessibility and quality of information within the texts of interest rate announcements published by the Bank of Israel over the past decade. We find that comprehension of interest rate announcements published by the Bank of Israel requires fewer years of education than interest rate announcements published by the Federal Reserve and the European Central Bank. In addition, we show that the sentiment within these announcements is aligned with economic fluctuations. We also find that textual uncertainty is correlated with the volatility of the domestic financial market.

Determinants of Sukuk credit rating: evidence from issuing firms in Malaysia

PurposeThis study aims to examine the determinants of Sukuk credit ratings of issuing firms in Malaysia, and the rating changes from lower to higher rating and vice versa.Design/methodology/approachA total of 328 Sukuk issuances and 1,110 Sukuk rating announcements from 2009 to 2014 were analysed using generalized ordered logit regressions approach. Firm financial characteristics, corporate governance attributes, macroeconomic factors and Sukuk structures (debt or equity based) were among the important determinants used to explain the different Sukuk credit ratings.FindingsThe results indicate a positive association of Sukuk credit rating with issuing firm’s financial information, governance attributes and the Sukuk structure whilst the macroeconomic factors did not explain the changes in the Sukuk credit rating. Specifically, firm size, profitability and leverage characteristics had significant positive effect on Sukuk credit rating for listed firms whilst only firm’s profitability had a positive effect on Sukuk credit rating by unlisted firms. With regard to governance, the board structure which includes board size, board independence and CEO/Chairman non-duality is associated with positive Sukuk credit rating for listed firms. Only financial report audited by big four auditors is associated with positive Sukuk credit rating for unlisted firms. Equity-based Sukuk are associated with positive Sukuk credit rating for listed firms while for unlisted firms only the Ijarah Sukuk had a positive Sukuk credit rating.Research limitations/implicationsData on credit rating is scarce and had to be hand-collected from published reports. Furthermore, issues on the lack of standardisation of Islamic contracts in different geographical areas could constrain on the comparability of findings on determinants of ratings in different jurisdictions.Practical implicationsThe findings provide some guide to the rating agencies to objectively assess the issuer’s creditworthiness that could mitigate default risk. Mitigating the default risk will boost investors’ confidence and credibility of credit rating agencies.Originality/valueThis study examines the determinants of Sukuk credit rating of issuing firms in Malaysia, which include not only the listed firms but also the unlisted firms.

Asymmetric trading responses to credit rating announcements from issuer‐ versus investor‐paid rating agencies

AbstractThe credit rating industry has traditionally followed the “issuer‐pays” principle. Issuer‐paid credit rating agencies (CRAs) have faced criticism regarding their untimely release of negative rating adjustments, which is attributed to a conflict of interests in their business model. An alternative model based on the “investor‐pays” principle is arguably less subject to the conflict of interest problem. We examine how investors respond to changes in credit ratings issued by these two types of CRAs. We find that investors react asymmetrically: They abnormally sell equity stakes around rating downgrades by investor‐paid CRAs, while abnormally buying around rating upgrades by issuer‐paid CRAs. Our study suggests that, through their trades, investors capitalize on value‐relevant information provided by both types of CRAs, and a dynamic trading strategy taking advantage of this information generates significant abnormal returns.

Effects of credit rating announcements on risk perception of financial markets in emerging countries

Effects of credit rating announcements on risk perception of financial markets in emerging countries

The Impact of Credit Rating Announcements on the Efficiency of the Stock Market

Taking the data of China's listed banks from 2015 to 2021 as a sample, this paper uses the event study method to analyze the impact of credit rating announcements on the effectiveness of the stock market. The results indicate that credit rating announcements have no significant impact on stock returns, and the market is in a semi strong form efficient state. By observing the excess returns of stocks after credit rating downgrades and upgrades, it is found that the excess returns after rating downgrades are not significantly negative, and the market is in a semi strong form efficient state; The rating upgrade has a significant positive impact on stock returns, indicating that the market is in a weakly efficient state.

The effect of credit rating announcements on stock returns of banks in India

The effect of credit rating announcements on stock returns of banks in India

Effects of Credit Rating Announcements on Risk Perception of Financial Markets in Emerging Countries

Effects of Credit Rating Announcements on Risk Perception of Financial Markets in Emerging Countries

The Determinants of Credit Rating and the Effect of Regulatory Disclosure Requirements: Evidence from an Emerging Market

Abstract We examine the determinants of credit rating for the debt instruments of Indian firms. The ordered probit model analysis of firms with rating announcements by CARE, CRISIL, and ICRA, the major rating agencies in India, indicates that interest coverage, profitability, financial leverage, market size, stock beta, and volatility have a significant effect on credit ratings. We find evidence that the credit rating levels have become lower after the market regulator’s passage of Transparency and Disclosure Norms in June 2010. The results suggest that regulatory disclosure requirements influence rating agencies to be conservative in their rating standards.

Identifying the Effects of Macroeconomic Attention Through Foreign Investor Distraction

AbstractWhile the causal impact of limited attention to macroeconomic news is difficult to detect, this article proposes one solution: exploiting when foreign investors are “distracted” by risk factors in their home markets. I demonstrate that financial activity in the average foreign investor’s home market decreases foreign attention paid to 21 emerging economies, measured using Google search volume for economy-specific financial terms that emanate from outside each economy’s border. Exploiting this effect using an instrumental variables approach, I find that an exogenous increase in foreign attention preceding a scheduled monetary policy rate announcement raises preannouncement stock returns and announcement day turnover.

Central bank policy rate announcements and high-frequency intra-day benchmark stock returns reaction dynamics: Evidence from South Africa

ABSTRACT This paper investigates the chronological impact of South African Reserve Bank (SARB) repo rate announcements on the Financial Times Stock Exchange/Johannesburg Securities Exchange (FTSE/JSE) All Share Index (ALSI) returns and returns volatility. Covering the period 2012–2021, the study employs the ‘event study’ approach, a risk augmented generalised autoregressive conditional heteroscedasticity (GARCH-in-mean) model, and high-frequency intra-day 1-minute stock quotes during narrow windows to avert (or minimise) data contamination problems – endogeneity bias and coinciding effects of other exogenous variables on the stock market around the repo rate announcement time. In line with a priori expectations, there is an inverse relationship between stock returns and repo rate surprises (or unexpected repo rate changes). And consistent with findings in developed economies, our econometric results show that the reaction of the South African (SA) stock market to repo rate surprises is swift, indicating a high degree of ‘mechanical efficiency’ in respect to central bank policy rate surprises. But the delayed returns volatility response mirrors that of findings in the scant empirical literature on emerging markets. Evidence of both time-varying risk-return and time-varying degree of ‘informational efficiency’ is consistent with the adaptive market hypothesis (AMH).

The Impact of Sovereign Credit Rating News on Credit Default Swap Spreads

This paper explores the impact of sovereign credit rating news from three credit rating agencies, namely Moody’s, Fitch, and Standard & Poors, on credit default swaps (CDS). We use an event study methodology to analyze how CDS spread reacts to sovereign CR (Credit Rating) rating news in 31 countries between 2005 and 2018. The effects of rating news on CDS spread are conditional on the prior status of the rating watch or outlook. The results show that CDS spreads respond significantly more toward negative rating news. We find that sovereign rating announcements have different effects in developed and emerging markets.

Reaction of the Philippine Stock Market to Domestic Monetary Policy Surprises: An Event Study Approach

This paper uses an event study analysis to assess how stock prices in the Philippines have reacted to domestic monetary-policy changes using data at a daily frequency from 2017 to 2022. A major contribution of this paper is the construction of a monetary-policy surprise measure for the Philippines, as the difference between the actual change in the monetary policy rate and the change anticipated by professional forecasters. My results are consistent with the literature, suggesting that unanticipated monetary policy changes exert a significant influence on stock prices in the Philippines. Overall, I find that an unexpected increase of 25 basis points in the monetary policy rate increases stock prices by about 1.09% on average. These results are robust to the inclusion of additional control variables in the baseline regression model, such as the implementation of restrictions to economic activity to curb the spread of the COVID-19 outbreak or revisions to macroeconomic forecasts released concomitantly with the monetary-policy rate announcement.

Fiscal uncertainty and sovereign credit risk

Periods of economic crisis and large fiscal interventions are often associated with elevated levels of uncertainty about governments’ future fiscal positions. This paper studies the impact of fiscal uncertainty on sovereign credit risk, and on the attention paid to expert assessments of such risk, using the example of sovereign credit ratings. Employing data that covers the Global Financial Crisis, a measure of fiscal uncertainty is constructed that is comparable across time and a range of advanced economies. To estimate the determinants of sovereign credit risk, an empirical framework is developed that accounts for the high stability of credit ratings over time by way of a new estimator for ordered and partially unobserved outcomes. Attention to credit rating announcements is measured using movements in financial market prices and internet search volume. Results suggest that fiscal uncertainty increases the predictive power of a model of sovereign credit ratings and can explain why credit ratings are often changed more frequently during crises. Sovereign credit ratings also gain more attention when uncertainty is high with the potential to aggravate sovereign distress.