The impact of credit rating agencies on the stock market of the United States during the great recession of 2007-2008 : an empirical study

Abstract

This thesis examines the impact of rating announcements that are released by Credit Rating Agencies, a key player in the financial markets, on the returns of the US Stock market whilst taking the case of the financial crisis, using a period of daily data from 4 th of January 2007 until 28th of May 2010. Firstly, the downgrades result in significant negative abnormal returns. Secondly, the upgrades do not present a significant impact on abnormal returns, since only one case came up to be noteworthy. Thirdly, rating downgrades do have an impact on the volatility of the S&P500 returns. Finally, rating upgrades do not form any influence on market volatility. The models implemented in this paper show that rating changes, specifically downgrades, do impact the market indicators used, S&P Financial and S&P500. This shows how much the ratings released by the agencies had a role on the market during the great recession of 2008.