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Do investors care about credit ratings? An analysis through the cycle

Abstract : We investigate how the credit cycle affects the link between bond spreads and credit ratings. Using a simple model of the credit assessment process, we show that when the debt market is more opaque, the information content of ratings deteriorates, creating an incentive for investors to increase the amount spent on private information. We test this hypothesis empirically. Results show that when market opaqueness (proxied by the spread between Aaa- and Baa-rated bonds) increases, the explanatory power of ratings and other control variables deteriorates as investors increasingly price in non-public information.
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https://hal-audencia.archives-ouvertes.fr/hal-00994322
Contributor : Sylvia Cheminel <>
Submitted on : Wednesday, May 21, 2014 - 12:17:18 PM
Last modification on : Wednesday, May 21, 2014 - 12:17:18 PM

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Giuliano Iannotta, Giacomo Nocera, Andrea Resti. Do investors care about credit ratings? An analysis through the cycle. Journal of Financial Stability, Elsevier, 2013, 9 (4), pp.545-555. ⟨10.1016/j.jfs.2012.11.006⟩. ⟨hal-00994322⟩

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