Detail publikace

Credit Rating Downgrade Risk on Equity Returns

Autor: Periklis Brakatsoulas M.Sc.,
PhDr. Jiří Kukačka Ph.D.,
Typ: IES Working Papers
Rok: 2020
Číslo: 13
ISSN / ISBN:
Publikováno v: IES Working Papers 13/2020
Místo vydání: Prague
Klíčová slova: Asset pricing, credit risk, panel data, stock returns, transition matrices.
JEL kódy: G11, G12, G14, G41
Citace: Brakatsoulas P. and Kukacka J. (2020): "Credit Rating Downgrade Risk on Equity Returns" IES Working Papers 13/2020. IES FSV. Charles University.
Granty: PRIMUS/19/HUM/17 2019-2021 Behaviorální finance a makroekonomie: Nové pohledy pro hlavní proud
Abstrakt: We develop a four-factor model intended to capture size, value, and credit rating transition patterns in excess returns for a panel of predominantly mid- and large-cap entities. Using credit transition matrices and rating histories from 48 US issuers, we provide evidence to support a statistically significant negative downgrade risk premium in excess returns, suggesting that stocks at higher risk of failure tend to deliver lower returns. The performance of the model remains robust across several estimation methods. Panel Granger causality test results indicate that there indeed is a Granger-causal relationship from credit rating transition probabilities to excess returns. Our paper thus provides a new methodology to generate firm-level downgrade probabilities and the basis for further empirical validation and development of Fama-French-type models under financial distress.
Ke stažení: wp_2020_13_brakatsoulas_kukacka
Prosinec 2020
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