Impact of Credit Rating Announcements on Stock Return-Evidences from Pakistan Stock Exchange

摘要

After the introduction of the Efficient Market Hypothesis many studies has been carried out totest whether the capital market of respective countries confirmed the theory.Though inPakistan there is found that Pakistan Stock Exchange (formally Karachi Stock Exchange) is depicted the conformity in weak form of efficiency.In this paper we test semi strong of efficiency with application of event study on the event of credit rating announcement.
　　This study is aimed to identify the impact of credit rating announcements on the stock returns in stock markets and for this purpose, 5 different sectors of Pakistan stock exchange were selected and from each of these five sectors, different business organizations were selected i.e.total 37 business organizations were selected.The credit rating announcement data was collected for these 37 business organizations belong to five different sectors.Total 116 credit rating announcements were selected and the time period for which the credit rating warnings were selected include last three years period i.e.from 2014 to 2016.Data for the stock prices of the companies is taken from online sources of Pakistan Stock Exchange(PSX) web portal while the data of credit rating announcement is taken from the web portal of Pakistan Credit Rating Announcement Agency(PACRA).
　　The collected data was analyzed by calculating abnormal returns for each of the selected security and average abnormal returns and cumulative average abnormal returns were calculated for five different sectors.Event study methodology was applied and T-test and t-stats value was calculated and results are analyzed on basis of t-statistics.The results of analysis identified that credit rating announcements have significant impact on stock prices and investors and other market participants are earning abnormal returns during two daystime period after the announcements are made.In addition, these abnormal returns were either negative or positive,depending upon nature of credit ratings announced.If the credit rating announced was upgraded,investors enjoyed positive abnormal returns while in case when credit rating announcements were downgraded, then investors bear negative abnormal returns.Finally, the findings of study identified the applicability of random walk hypothesis on Pakistan Stock Exchange and Pakistan Stock Exchange confirms the efficient market hypothesis with its semi-strong form of efficiency.
　　While theoretical analysis retails that since the marketcapitalization is not on very high side so the informational effect of the credit rating announcement on the stock priceis not significant and empirical studies endorse the results like dividend announcement and release of financial statement in PSX also fail to show significant impact on the stock prices or the abnormal return to the investors.Another reason is the lower percentage of noise traders which cannot magnify the informational impact of credit rating announcement on stock returns in our study.
　　Key Words: Efficient Market Hypothesis; Credit Rating Announcement; Event Study; Pakistan Stock
　　Exchange.

目录

声明

Acknowledgement

Abstract

Contents

CHAPTER ONE 1．0 Introduction

1．1 PACRA (Pakistan Credit Rating Agency)

1．2 Efficient Market Hypothesis

1．3 Signaling Theory

1．4 Agency Theory

1．5 Background of Study

1．6 Objectives of Study

1．7 Research Questions

1．8 Significance of the Study

1．9 Research Outline

CHAPTER TWO 2．0 Literature Review

2．1 Assumptions in Efficiency Market Hypothesis

2．2 Hypothesis

CHAPTER THREE 3．0 Methodology and Data Description

3．1 Data and Data Collection

3．2 Population and Sample

3．3 Event Study Methodology

3．4 Research Methodology

3．5 Research Methods for Data Collection and Analysis

Step 1-Defining Event

3．6 Abnormal Returns Calculation Proeedure

3．7 Validity and Reliability Analysis

CHAPTER FOUR 4．0 Data Analysis and Interpretation

4．1 General Analysis of Sample

4．2 Results of Test Applied

4．2．1 Banking Industry

4．2．2 Insurance Industry

4．2．3 Textile Industry

4．2．4 Sugar Industry

CHAPTER FIVE 5．0 Discussion，Conclusion and Recommendations

5．1 Discussion on Findings

5．2 Recommendations

References