The Impact of Credit Rating Changes on Share Price Dynamics

Credit ratings provide an expert assessment of borrowers' risks and contain a large amount of information that is taken into account by the market. However, the impact of its changes on the stock prices dynamics remains a subject of controversy in the scientific community. This paper is an attempt to assess the effect of news releases about changes in the company's credit rating on its stock prices dynamics on the Russian market. Based on the application of the event analysis methodology, this research includes tests of various modifications of the market model, analysis of symmetric and asymmetric event windows, usage of parametric and nonparametric statistical tests to verify the significance of the results obtained. The research sample consists of news about changes in credit ratings and their forecasts made by key foreign (Moody’s, S&P, Fitch) and Russian (ACRA, Expert RA, NRA) agencies in the period from 2011 to 2021. The study confirmed the statistical significance of a short-term positive market reaction in case of rating upgrades and negative in case of downgrades. Differences were also found in the strength and duration of market reaction depending on the brand of the credit rating agency. The impact of news on changes in the Credit Rating Outlook was statistically insignificant.