nach oben

Erschienen in:

2017 | OriginalPaper | Buchkapitel

The Effects of Credit Rating Announcements on Bond Liquidity: An Event Study

verfasst von : Pilar Abad, Antonio Diaz, Ana Escribano, M. Dolores Robles

Erschienen in: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Verlag: Springer International Publishing

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This paper investigates liquidity shocks on the US corporate bond market around credit rating change announcements. These shocks may be induced by the information content of the announcement itself, and abnormal trading activity can be triggered by the release of information after any upgrade or downgrade. Our findings show that: (1) the market anticipates rating changes, since trends liquidity proxies prelude the event, and additionally, large volume transactions are detected the day before the downgrade; (2) the concrete materialization of the announcement is not fully anticipated, since we only observe price overreaction immediately after downgrades; (3) a clear asymmetric reaction to positive and negative rating events is observed; (4) different agency-specific and rating-specific features are able to explain liquidity behavior around rating events; (5) financial distress periods exacerbate liquidity responses derived from downgrades and upgrades.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nächstes Kapitel The Effect of Credit Rating Events on the Emerging CDS Market

Recent papers using some of these measures corroborate the liquidity effects on prices (see, e.g., Bao et al. [1], Dick-Nielsen et al. [8] and Friewald et al. [10]).

The use of the TRACE data set for research purposes requires previous filtering. Edwards et al. [9] and Dick-Nielsen [7] propose using algorithms to filter out the reporting errors, and we apply these, introducing minor variations. From the original 45 million transactions, we include in our sample about 4.5 million.

We exclude zero or variable coupon bonds, TIPS, STRIPS, perpetual bonds and bonds with embedded options, such as putable, callable, tendered, preferred, convertible or exchangeable bonds. Additionally, we ignore municipal bonds, international bonds and eurobonds. We also eliminate those bonds that are part of a unit deal.

Bonds double- or triple-rated by more than one CRAs, are set as unique events. We compute the final rating as the average rating using the numeric value assigned by the long-term debt rating equivalences, with values from AAA = 1 to D = 25. CRCs in the opposite direction are ignored.

Following Corwin and Lipson [5] we use the firm-specific past history to compute the expected liquidity in a period of typical liquidity. Other alternative is considering an appropriate matching portfolio of similar bonds with stable ratings. However, the lack of liquidity in corporate bond markets makes this approach unsuitable. Bessembinder et al. [2] indicate that construct abnormal bond returns using the matching portfolio models (the benchmark is a matching portfolio designed to adjust risk and time-to-maturity) or the mean-adjusted model (the benchmark is Treasury security with the most similar maturity date) induces a bias.

See Sheskin [17] for details.

Other results for different subsamples and periods are available upon request.

As control variables we include the bond’s age, the relative offering amount, and two dummy variables for firms in the industrial and financial industries.

Other results for the pre-event window [−5, −1] are available upon request.

Bao, J., Pan, J., Wang, J.: The illiquidity of corporate bonds. J. Financ. 66(3), 911–946 (2011)CrossRef

Bessembinder, H., Kahle, K.M., Maxwell, W.F., Xu, D.: Measuring abnormal bond performance. Rev. Financ. Stud. 22(10), 4219–4258 (2008)CrossRef

Chen, L., Lesmond, D.A., Wei, J.: Corporate yield spreads and bond liquidity. J. Financ. 62(1), 119–149 (2007)CrossRef

Cooper, S.K., Groth, J.C., Avera, W.E.: Liquidity, exchange listing, and common stock performance. J. Econ. Bus. 37(1), 19–33 (1985)CrossRef

Corwin, S.A., Lipson, M.L.: Order flow and liquidity around NYSE trading halts. J. Financ. 55(4), 1771–1805 (2000)CrossRef

Diaz, A., Merrick, J., Navarro, E.: Spanish Treasury bond market liquidity and volatility pre- and post-European Monetary Union. J. Bank. Financ. 30, 1309–1332 (2006)CrossRef

Dick-Nielsen, J.: Liquidity biases in TRACE. J. Fixed Income 19(2), 43–55 (2009)CrossRef

Dick-Nielsen, J., Feldütter, P., Lando, D.: Corporate bond liquidity before and after the onset of the subprime crisis. J. Financ. Econ. 103(3), 471–492 (2012)CrossRef

Edwards, A.K., Harris, L.E., Piwowar, M.S.: Corporate bond market transaction costs and transparency. J. Financ. 62(3), 1421–1451 (2007)CrossRef

10.

Friewald, N., Jankowitsch, R., Subrahmanyam, M.: Illiquidity or credit deterioration: a study of liquidity in the US corporate bond market during financial crises. J. Financ. Econ. 105, 18–36 (2012)CrossRef

11.

Holthausen, R.W., Leftwich, R.W.: The effect of bond rating changes on common stock prices. J. Financ. Econ. 17(1), 57–89 (1986)CrossRef

12.

Jankowitsch, R., Nashikkar, A., Subrahmanyam, M.G.: Price dispersion in OTC markets: a new measure of liquidity. J. Bank. Financ. 35, 343–357 (2011)CrossRef

13.

Jorion, P., Zhang, G.: Good and bad credit contagion: evidence from credit default swaps. J. Financ. Econ. 84, 860–883 (2007)CrossRef

14.

Kim, O., Verrecchia, R.E.: Market liquidity and volume around earnings announcements. J. Account. Econ. 17, 41–67 (1994)CrossRef

15.

May, A.D.: The impact of bond rating changes on corporate bond prices: new evidence from the over-the-counter market. J. Bank. Financ. 34(11), 2822–2836 (2010)CrossRef

16.

Norden, L., Weber, M.: Informational efficiency of credit default swap and stock markets: the impact of credit rating announcements. J. Bank. Financ. 28, 2813–2843 (2004)CrossRef

17.

Sheskin, D.J.: Handbook of Parametric and Nonparametric Statistical Procedures. CRC Press, New York (1997)MATH

18.

Steiner, M., Heinke, V.G.: Event study concerning international bond price effects of credit rating actions. Int. J. Financ. Econ. 6, 139–157 (2001)CrossRef

Titel: The Effects of Credit Rating Announcements on Bond Liquidity: An Event Study
verfasst von: Pilar Abad
Antonio Diaz
Ana Escribano
M. Dolores Robles
Verlag: Springer International Publishing
Buch: Mathematical and Statistical Methods for Actuarial Sciences and Finance
Print ISBN: 978-3-319-50233-5

Electronic ISBN: 978-3-319-50234-2

Copyright-Jahr: 2017
DOI: https://doi.org/10.1007/978-3-319-50234-2_1