Instructions:
The topic is whether credit rating announcements affect banks stock returns. I will attach similar work that will help you understand it better.
This study is concentrated on the following hypotheses:
H1: Announcements of the credit rating changes have no significant effect on stock returns.
The alternative hypothesis states that credit rating announcement has a significant effect on stock returns and many studies support this hypothesis.
In general, it is necessary to form the hypothesis relating to downgrades and upgrades of the rating. Thus, the subsequent hypotheses were formed:
H2 (a): Credit rating upgrades have no significantly positive effect on stock returns.
H2 (b): Credit rating downgrades have a statistically negative effect on stock returns.
The data is gathered from Bloomberg and includes banks listed on LSE. The full sample consists of 24 banks and their stock prices. Also, it includes all together 78 rating announcements (25 upgrades and 53 downgrades) by Moody’s from 15/08/2014 to 14/08/2019. The FTSE ALL-Share bank index is used as a benchmark to estimate the expected returns. The data is restricted to only issuer ratings because issuer ratings best reflect overall credit quality and thus should cause a major stock price reaction.
An event study methodology should be used to show whether rating announcement affect bank’s stock returns. For this methodology market model or CAPM can be used. The estimation window runs from 90 trading days to 10 days before the announcement [-90; -10] and the event window for AAR and CAARS can vary [-5;5], [-2;2], [-1;1]. Test the significance of the results.
Rating downgrades announcement generate stronger and more predictable results according to the literature. Also do graphs.
Moreover, produce the regression analysis of credit ratings impact on Stock returns. The data of variables in in Regression.xlsx. Discuss the regression results.
Instructions:
The topic is whether credit rating announcements affect banks stock returns. I will attach similar work that will help you understand it better.
This study is concentrated on the following hypotheses:
H1: Announcements of the credit rating changes have no significant effect on stock returns.
The alternative hypothesis states that credit rating announcement has a significant effect on stock returns and many studies support this hypothesis.
In general, it is necessary to form the hypothesis relating to downgrades and upgrades of the rating. Thus, the subsequent hypotheses were formed:
H2 (a): Credit rating upgrades have no significantly positive effect on stock returns.
H2 (b): Credit rating downgrades have a statistically negative effect on stock returns.
The data is gathered from Bloomberg and includes banks listed on LSE. The full sample consists of 24 banks and their stock prices. Also, it includes all together 78 rating announcements (25 upgrades and 53 downgrades) by Moody’s from 15/08/2014 to 14/08/2019. The FTSE ALL-Share bank index is used as a benchmark to estimate the expected returns. The data is restricted to only issuer ratings because issuer ratings best reflect overall credit quality and thus should cause a major stock price reaction.
An event study methodology should be used to show whether rating announcement affect bank’s stock returns. For this methodology market model or CAPM can be used. The estimation window runs from 90 trading days to 10 days before the announcement [-90; -10] and the event window for AAR and CAARS can vary [-5;5], [-2;2], [-1;1]. Test the significance of the results.
Rating downgrades announcement generate stronger and more predictable results according to the literature. Also do graphs.
Moreover, produce the regression analysis of credit ratings impact on Stock returns. The data of variables in in Regression.xlsx. Discuss the regression results.
