Abnormal Equity Returns Following Downgrades

摘要：

This paper shows that previously reported puzzling results regarding negative abnormal returns following downgrades are largely due to the methodology used in those studies to compute abnormal returns. When returns are adjusted not only for the size and book-tomarket characteristics of stocks, but also for their default risk, the abnormal negative returns following downgrades either disappear, or become economically insignificant. Using Merton’s (1974) model to compute default likelihood indicators, we document that firms whose default risk increases, earn significantly higher subsequent returns than firms whose default risk decreases. The result holds even when returns are controlled for past returns, volume, liquidity, and bid-ask spreads. The findings of this paper contradict previous results in the literature. They are, however, perfectly consistent with rational behavior.

关键词： default risk Merton’s (1974) model abnormal equity returns credit rating downgrades/upgrades size book-to-market.

作者: Maria Vassalou Yuhang Xing

作者单位: Graduate School of Business Columbia University,416 Uris Hall,3022 Broadway, New York,NY 10027 Jones School of Management, Rice University, 6100 Main street,Houston,TX 77025

会议类型: 国际会议

会议名称: 2005年中国国际金融年会

会议地点: 昆明

会议语种:英文

在线出版日期: 2005-07-05（万方平台首次上网日期，不代表论文的发表时间）