Jan Klobucnik

Do Rating Announcements convey new Information?: An Event Study on Credit Default Swap Spreads Jan Klobucnik

Diploma Thesis from the year 2010 in the subject Economics - Statistics and Methods, grade: 1,3, University of Tubingen, language: English, comment: empirische Arbeit , abstract: Rating agencies play an important role on the capital markets; however, during the financial crisis 2007-2009 people began to question how good their assessments of credit quality really are. In my study, I empirically examine the effect of rating announcements from Standard & Poor's on the Credit Default Swap (CDS) Market. It contributes to the field of rating agencies' performance measurement. Based on Event Study Methodology and recent CDS data, I detect virtually no significant abnormal spread change at the announcement date neither for downgrades nor upgrades. However, the CDS show some anticipation prior to the event especially for downgradings. Considering the rating date, I find evidence for an asymmetric reaction where downgrades cause stronger movement in the spreads. As a result, it seems as if rating changes do not convey a great part of new information to the markets. At the same time, the significant anticipation indicates that the CDS market processes information more efficiently.