Impact of Bond Rating Changes on Stock Prices in India : Rating Agency Wise Analysis

In this paper, we examined the impact of bond rating change announcement on the stock prices by computing the abnormal return of a security. The sample size of our study was 167 rating change announcements of four credit-rating agencies during the years 1991 to 2015. We used the event study methodology to estimate the expected return from a security. The study found average abnormal stock returns associated with the event, however, they were quite insignificant when tested with t -statistics, which revealed that credit ratings change announcements (either upgraded or downgraded news) carried a very minimal impact on the stock prices in the Indian context. The run test described that the average abnormal returns found occurred randomly.