I’m going to test for the effect corporate credit rating announcements have on stock prices through different economic climates (good times vs. bad times). I want to research whether or not the stock price reaction to a corporate credit rating upgrade/downgrade is more extreme in a tough economic climate (financial crisis).
A lot of research has been done on corporate credit rating announcements (upgrade, downgrade, positive and negative watch) effect on stock prices but not a lot of research has compared the results from different time periods (before/after vs. during financial crisis, before vs. after regulation). Joo & Pruitt (2006) studied the Korean financial crisis, and Jorion et al. (2006) studied the effects before and after Regulation Fair Disclosure. However, these papers are fairly short and don’t explain the statistical framework in detail (At least to me it’s not clear what they are doing).
I have done some previous research using the event study methodology presented by Brown & Warner (1985) and MacKinlay (1997) but I’m not sure if it’s applicable to this problem. And if it is, I’m not completely sure how to compare the results from different periods.
I'd be forever grateful if anyone could point me in the right direction.
- Brown, S. J., & Warner, J. B. (1985). Using daily stock returns: The case of event studies. Journal of financial economics, 14(1), 3-31.
- Joo, S. L., & Pruitt, S. W. (2006). Corporate bond ratings changes and economic instability: Evidence from the Korean financial crisis. Economics Letters, 90(1), 12-20.
- Jorion, P., Liu, Z., & Shi, C. (2005). Informational effects of regulation FD: evidence from rating agencies. Journal of financial economics, 76(2), 309-330.
- MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of economic literature, 13-39.