Information asymmetry and investor trading behavior around bond rating change announcements |
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| Affiliation: | 1. College of Economics, Sungkyunkwan University, Jongno-gu, Seoul 03063, Republic of Korea;2. Business School, Sungkyunkwan University, Jongno-gu, Seoul 03063, Republic of Korea;3. School of Accounting, Economics & Finance, University of Wollongong, NSW 2522, Australia;1. Department of Finance and Statistics, Hanken School of Economics, P.O. BOX 479, 00101 Helsinki, Finland;2. Trinity College Dublin, College Green, Dublin 2, Ireland;1. The Olayan School of Business, American University of Beirut, Bliss Street, Beirut, Lebanon;2. Pamplin College of Business, Virginia Tech, Blacksburg, VA 24060, United States;3. Lee School of Business, University of Nevada, Las Vegas, NV 89154, United States |
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| Abstract: | This study examines stock market reactions to public announcements (corporate bond rating changes), including changes in stock prices and investor behavior in terms of trading volumes and patterns. Abnormal returns, abnormal volumes, and net order imbalances are estimated using high-quality stock transaction data from Korean firms, whose bonds were rated by Korea's leading credit rating agencies between 2000 and 2015. We find positive (negative) abnormal stock returns around upgrades (downgrades), although the stock price reactions to downgrades are more statistically significant than those to upgrades. Significant abnormal volumes and order imbalances are found around rating changes, and the extent to which each investor group (domestic individuals, domestic institutions, or foreign investors) reacts to a rating change varies. Our analyses also support that foreign and domestic institutional investors are better informed than individual investors. |
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