Preferred Stock Returns, CreditWatch, and Preferred Stock Rating Changes
This paper examines the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on CreditWatch and later rerated or affirmed by Standard & Poor's. Results indicate that CreditWatch provides information to market participants and m...
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| Published in | The Financial review (Buffalo, N.Y.) Vol. 25; no. 2; pp. 265 - 285 |
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| Main Authors | , , |
| Format | Journal Article |
| Language | English |
| Published |
Oxford, UK
Blackwell Publishing Ltd
01.05.1990
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| Subjects | |
| Online Access | Get full text |
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| Abstract | This paper examines the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on CreditWatch and later rerated or affirmed by Standard & Poor's. Results indicate that CreditWatch provides information to market participants and may have reduced the surprise associated with subsequent reratings. CreditWatch placement may be an erroneous signal, however, since nearly 50 percent of the issues placed for negative reasons were not downgraded, but affirmed, upon removal from Credit Watch. |
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| AbstractList | An examination was conducted of the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on CreditWatch and later rerated or affirmed by Standard & Poor's between 1981 and 1987. An assessment was made of the reaction to situations in which the action upon removal from CreditWatch is not consistent with the original reason the preferred issue was placed on CreditWatch. Results indicate that CreditWatch provides information to market participants and may have reduced the surprise associated with subsequent reratings. CreditWatch placement may be an erroneous signal, however, since nearly 50% of the issues placed for negative reasons were not downgraded but were affirmed upon removal from CreditWatch. Significant determinants of preferred stock downgrading announcement effects include: 1. the signed number of rating grades by which the issue is altered, 2. whether or not the rerating is associated by a contaminating event, and 3. the cumulative excess return in the period prior to the rerating. This paper examines the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on CreditWatch and later rerated or affirmed by Standard & Poor's. Results indicate that CreditWatch provides information to market participants and may have reduced the surprise associated with subsequent reratings. CreditWatch placement may be an erroneous signal, however, since nearly 50 percent of the issues placed for negative reasons were not downgraded, but affirmed, upon removal from Credit Watch. Abstract This paper examines the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on CreditWatch and later rerated or affirmed by Standard & Poor's. Results indicate that CreditWatch provides information to market participants and may have reduced the surprise associated with subsequent reratings. CreditWatch placement may be an erroneous signal, however, since nearly 50 percent of the issues placed for negative reasons were not downgraded, but affirmed, upon removal from Credit Watch. |
| Author | Elayan, Fayez A. Maris, Brian A. Wansley, James W. |
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| Cites_doi | 10.1111/j.1475-6803.1985.tb00416.x 10.1111/j.1540-6261.1978.tb03387.x 10.1016/0304-405X(86)90059-0 10.1016/0304-405X(85)90042-X 10.1016/0165-4101(86)90003-0 10.1111/j.1475-6803.1985.tb00423.x 10.1016/0304-405X(86)90006-1 10.1016/0304-405X(77)90042-3 10.1086/296045 |
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| References | Wansley, James W., and Terrence M. Clauretie. The Impact of CreditWatch Placemnt on Equity Returns and Bond Prices. Journal of Financial Research 8(Spring 1985):31-42. Davidson, Wallace N., III, and John L. Glascock. The Announcement Effect of Preferred Stock Re-Ratings. Journal of financial Research 8(Winter 1985):317-325. Dennis, Debra K., and John J. McConnell. Corporate Mergers and Security Returns. Journal of Financial Economics 16(June 1986):143-187. Danos, Paul, Doris L. Holt, and Eugene A. Imhoff, Jr. Bond Raters' Use of Management Financial Forecasts: An Experiment in Expert Judgment. Accounting Review 59(October 1984):547-573. Kaplan, Robert S., and Gabriel Urwitz. Statistical Models of Bond Ratings: A Methodological Inquiry. Journal of Business 52(April 1979):231-262. Holthausen, Robert W., and Richard W. Leftwich. The Effect of Bond Rating Changes on Common Stock Prices. Journal of Financial Economics 17(September 1986):57-89. Stickel, Scott E. The Effect of Preferred Stock Rating Changes on Preferred and Common Stock Prices. Journal of Accounting and Economics 8(October 1986):197-215. Wakeman, L. The Real Function of Bond Rating Agencies. Chase Financial Quarterly 1(1981):19-25. Weinstein, Mark I. The Effect of a Rating Change Announcement on Bond Price. Journal of Financial Economics 6(December 1977):329-350. Pinches, George E., and J. Clay Singleton. The Adjustment of Stock Prices to Bond Rating Changes. Journal of Finance 23(March 1978):29-44. Zonana, V., and D. Hertzberg. The rating Game. Wall Street Journal, November 2, 1981, pp. 1-23. Brown, Stephen J., and Jerold B. Warner. Using Daily Stock Returns: The Case of Event Studies. Journal of Financial Economics 14(March 1985):13-31. October 1984; 59 October 1986; 8 August 1988 November 2, 1981 1981; 1 December 1977; 6 1985; 8 April 1979; 52 1986; 16 March 1985; 14 September 1986; 17 January 1988 March 1978; 23 Danos Paul (e_1_2_1_4_2) 1984; 59 Ederington L. (e_1_2_1_7_2) Pinches George E. (e_1_2_1_10_2) 1978; 23 e_1_2_1_6_2 Zonana V. (e_1_2_1_16_2) 1981 e_1_2_1_5_2 e_1_2_1_2_2 e_1_2_1_11_2 e_1_2_1_3_2 e_1_2_1_15_2 Wakeman L. (e_1_2_1_12_2) 1981; 1 e_1_2_1_13_2 e_1_2_1_14_2 e_1_2_1_8_2 e_1_2_1_9_2 |
| References_xml | – volume: 14 start-page: 13 year: March 1985 end-page: 31 article-title: Using Daily Stock Returns: The Case of Event Studies publication-title: Journal of Financial Economics – volume: 8 start-page: 31 year: 1985 end-page: 42 article-title: The Impact of CreditWatch Placemnt on Equity Returns and Bond Prices publication-title: Journal of Financial Research – volume: 8 start-page: 317 year: 1985 end-page: 325 article-title: The Announcement Effect of Preferred Stock Re‐Ratings publication-title: Journal of financial Research – volume: 52 start-page: 231 year: April 1979 end-page: 262 article-title: Statistical Models of Bond Ratings: A Methodological Inquiry publication-title: Journal of Business – volume: 23 start-page: 29 year: March 1978 end-page: 44 article-title: The Adjustment of Stock Prices to Bond Rating Changes publication-title: Journal of Finance – volume: 8 start-page: 197 year: October 1986 end-page: 215 article-title: The Effect of Preferred Stock Rating Changes on Preferred and Common Stock Prices publication-title: Journal of Accounting and Economics – year: August 1988 – volume: 6 start-page: 329 year: December 1977 end-page: 350 article-title: The Effect of a Rating Change Announcement on Bond Price publication-title: Journal of Financial Economics – start-page: 1 year: November 2, 1981 end-page: 23 article-title: The rating Game publication-title: Wall Street Journal – year: January 1988 – volume: 17 start-page: 57 year: September 1986 end-page: 89 article-title: The Effect of Bond Rating Changes on Common Stock Prices publication-title: Journal of Financial Economics – volume: 1 start-page: 19 year: 1981 end-page: 25 article-title: The Real Function of Bond Rating Agencies publication-title: Chase Financial Quarterly – volume: 59 start-page: 547 year: October 1984 end-page: 573 article-title: Bond Raters' Use of Management Financial Forecasts: An Experiment in Expert Judgment publication-title: Accounting Review – volume: 16 start-page: 143 year: 1986 end-page: 187 article-title: Corporate Mergers and Security Returns publication-title: Journal of Financial Economics – ident: e_1_2_1_14_2 – volume: 59 start-page: 547 year: 1984 ident: e_1_2_1_4_2 article-title: Bond Raters' Use of Management Financial Forecasts: An Experiment in Expert Judgment publication-title: Accounting Review contributor: fullname: Danos Paul – volume: 1 start-page: 19 year: 1981 ident: e_1_2_1_12_2 article-title: The Real Function of Bond Rating Agencies publication-title: Chase Financial Quarterly contributor: fullname: Wakeman L. – ident: e_1_2_1_5_2 doi: 10.1111/j.1475-6803.1985.tb00416.x – volume: 23 start-page: 29 year: 1978 ident: e_1_2_1_10_2 article-title: The Adjustment of Stock Prices to Bond Rating Changes publication-title: Journal of Finance doi: 10.1111/j.1540-6261.1978.tb03387.x contributor: fullname: Pinches George E. – ident: e_1_2_1_3_2 – ident: e_1_2_1_6_2 doi: 10.1016/0304-405X(86)90059-0 – ident: e_1_2_1_2_2 doi: 10.1016/0304-405X(85)90042-X – ident: e_1_2_1_11_2 doi: 10.1016/0165-4101(86)90003-0 – ident: e_1_2_1_13_2 doi: 10.1111/j.1475-6803.1985.tb00423.x – ident: e_1_2_1_8_2 doi: 10.1016/0304-405X(86)90006-1 – ident: e_1_2_1_15_2 doi: 10.1016/0304-405X(77)90042-3 – start-page: 1 year: 1981 ident: e_1_2_1_16_2 article-title: The rating Game publication-title: Wall Street Journal contributor: fullname: Zonana V. – volume-title: The Financial Handbook ident: e_1_2_1_7_2 contributor: fullname: Ederington L. – ident: e_1_2_1_9_2 doi: 10.1086/296045 |
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| Snippet | This paper examines the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on CreditWatch and... Abstract This paper examines the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on... An examination was conducted of the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on... |
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| SubjectTerms | Mathematical models Preferred stock Rating services Statistical analysis Stock prices Studies |
| Title | Preferred Stock Returns, CreditWatch, and Preferred Stock Rating Changes |
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