The market and specific sector stock prices reaction around corporate bond’s credit rating and outlook changes – evidence in Thailand

Abstract

This study examines stock price reaction around credit rating and outlook changes in Thailand. We collect data from stocks listed in SET (The Stock Exchange of Thailand) which issued corporate bonds. These bonds must be listed in TBMA (The Thai Bond Market Association) and were rated by either Tris or Fitch rating Thailand between 2002-2020 (corporate bond credit rating and outlook change). We also study further about the effect of these credit rating events in 3 sectors of stock - Banking, Finance and Property Development. The empirical result shows that good credit events provide significant positive abnormal stock return after the announcement in both full sample (general stock) and 3 sectors sample, while bad credit event announcements do not provide any significant negative abnormal stock return. To precisely investigate the impact of credit event announcements, we add control variable to eliminate partially effect of other factors in our experiment. We found that cumulative abnormal return of stocks in 3 sectors is significantly greater than stocks in other sectors during good credit event announcements, but we did not find evidence that cumulative abnormal return of stocks in 3 sectors is lower than the cumulative abnormal return of stocks in other sectors during bad credit event announcements.