Determinants of abnormal liquidity after rating actions in the Corporate Debt Market
- Abad Romero, Pilar
- Díaz, Antonio
- Robles, Mª Dolores
- Robles Fernández, María Dolores
ISSN: 1988-8767
Year of publication: 2008
Issue: 427
Type: Working paper
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Abstract
The influence of rating announcements on corporate debt market liquidity has been previously overlooked. Based on an event study, we examine the effects of the announcements of effective rating changes, outlook notices, and CreditWatch placements provided by credit rating agencies on abnormal liquidity in the Spanish corporate debt market. We propose several measures of trading activity as proxies of liquidity since other more usual liquidity measures are not suitable for this kind of analysis. Also, by means of cross-section regressions, we establish what factors determine the sign and intensity of the liquidity reactions. The presented results indicate that factors related to the characteristics of the rating announcement, the issuing company and the economic environment are relevant in light of several hypotheses.