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Do Rating Announcements convey new Information?

An Event Study an Credit Default Swap Spreads

Diplomarbeit 2010 57 Seiten

BWL - Investition und Finanzierung

Zusammenfassung

Inhaltsangabe:Introduction:
Since the beginning of the last century, investors in capital markets have strongly relied on rating agencies’ assessments of credit quality to decide on investments. Due to their important role in debt markets, they are supposed to provide accurate ratings without delay. However, cases like the defaults of WorldCom or Enron have damaged their reputation. In particular, credit rating agencies have been heavily criticized for their role during the financial crisis of 2007-2009. Many economists blame the rating agencies for having played a major part in the securitization process of mortgage loans by providing too high rating grades; and thus sowing the seeds of the crisis. Having rated credit derivatives like collateralized debt obligations with best grades, the rating agencies encouraged banks and other financial institutions to keep these assets in their portfolios.
As a result, it caused severe problems for the banking sector when these products heavily lost in value. Along with imprecise assessments of creditworthiness, the slow reaction of rating agencies has been critizised over the last few years. Therefore, the question of how well the agencies assess credit quality arises. This question is of great importance because of their dominant role on capital markets and the fact that decisions are made upon their ratings. To put it more precisely, this study asks whether the agencies process and convey new information to the market. On the other hand, it might be the case that market participants anticipate any change in the credit quality of a company before these institutions publish their assessments. Answering this question is of particular importance: if the rating announcements convey unknown information and the market reacts, then rating agencies are a systemic part of capital markets and policy should consider stricter regulation to prevent manipulation and failures like those described above. Conversely, if their announcements do not contain any new information – or to put it differently, if markets react faster – then we could think about using market based indicators instead in order to assess credit risk. In this case, the economic task of signaling creditworthiness could be handed over, among others, to Credit Default Swaps (see Chapter 2), which is also suggested by Hart & Zingales. This thesis contributes to the field of rating agencies’ performance measurement.
Evaluating their announcements with the […]

Details

Seiten
57
Erscheinungsform
Originalausgabe
Jahr
2010
ISBN (eBook)
9783836649285
Dateigröße
451 KB
Sprache
Deutsch
Katalognummer
v227891
Institution / Hochschule
Eberhard-Karls-Universität Tübingen – Ökonometrie, Volkswirtschaftslehre
Note
1,3
Schlagworte
ratings rating agency credit risk capital market

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Titel: Do Rating Announcements convey new Information?