Journal of Credit Risk

Risk.net

On the relationship between credit rating announcements and credit default swap spreads for European reference entities

Thorsten Lehnert, Frederick Neske

ABSTRACT

Previous research suggests that credit rating announcements by Moody’s are anticipated by participants in the credit default swap market. In particular, it has been argued that downgrades and negative outlook reports do not contain significant information, but there seems to be anticipation of both types of ratings announcements. In this paper, we examine credit default swap spread changes conditional on a ratings announcement for European reference entities. For our sample of JP Morgan Trak-X Europe companies, we find evidence that downgrades and negative outlook reports do contain significant information, but we find no evidence that announcements are anticipated by participants in the credit default swap market. We also find evidence that, initially, credit default swap spreads do not fully adjust to the information in positive or stable outlook reports, resulting in significant post-announcement effects.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

If you already have an account, please sign in here.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: