GOOD FORECASTING OR INFORMATION LEAKAGE EXPLAINING MARKET BEHAVIOR PRIOR TO THE ANNOUNCEMENT OF SOVEREIGN RATING DOWNGRADES: EVIDENCE FROM TURKEY

Year 2020, Volume: 42 Issue: 2, 327 - 339, 31.12.2020

Saim Kılıç Ali Alp İhsan Uğur Delikanlı

https://doi.org/10.14780/muiibd.854499

Abstract

This paper aims to empirically test the impact of Turkey’s sovereign credit rating downgrades by three
major credit rating agencies on the Borsa İstanbul equity market prior to the official announcement,
and to ascertain whether any significant impact found is due to market players’ accurate forecasting or
information leakages. In this paper, the effects of nine downgrade announcements between 2016 and 2018
are analyzed using the Event Study method. In eight of the nine events, statistically significant negative
cumulative abnormal returns were estimated during the five trading days before the announcement.
Evidence suggests that three of the eight events reflected information leakage to the market, and five
indicated sound forecasting by market players alongside some information leakage. These results reveal
that it is necessary to take preventive measures against information leakage before the announcement of
the ratings assessments.

Keywords

Sovereign Credit Rating, Information Leakage, Insider Trading, Market Forecasting, Event Study

References

• BAYAR, Y., KILIÇ, C., SAVRUL, B. K. (2013). Effects of sovereign credit ratings on the Eurozone stock markets during the recent financial crises, International Journal of Business and Social Science, 4(12):133-145
• BISSOONDOYAL-BHEENICK, E., BROOKS, R., TREEPONGKARUNA, S. (2014). Rating spillover effects on the stock markets. Journal of Multinational Financial Management, 25: 51-63.
• BROOKS, R. FAFF, R. W., HILLIER, D., HILLIER, J. (2004). The national market impact of sovereign rating changes, Journal of Banking & Finance, 28(1): 233-250
• BÜYÜKÖZTÜRK, Ş. (2012), Sosyal Bilimler İçin Veri Analizi El Kitabı. 16. Baskı, Ankara: Pegem Akademi Yayıncılık
• COOTNER, P.H. (1964), The Random Character of Stock Market Prices, MIT Press, Cambridge.
• ÇAĞLAK, E., KÜÇÜKŞAHİN, H., KAHRAMAN, İ. (2018). Uluslararası Kredi Derecelendirme Kuruluşlarının Kredi Not Kararlarının Türkiye Finansal Piyasalarına Etkisi: Borsa İstanbul Sektör Endeksleri Üzerine Bir Uygulama, Ömer Halisdemir Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 11: 41-63
• HILL, P., FAFF, R. (2010), The market impact of relative agency activity in the sovereign ratings market, Journal of Business Finance and Accounting, 37:1309-1347
• İNAN, E. (2018). “S&P’den Öğrenenin Ticareti mi?”, Vatan Gazetesi, http://www.gazetevatan.com/ercan-inan-1163041-yazar-yazisi-s-p-den-ogrenenin-ticareti-mi-/, 02.06.2018
• KAMINSKY, G., SCHUMKLER, S. (1999). Emerging markets instability: Do sovereign ratings affect country risk and stock returns, The World Bank Economic Review, 16(2): 171-195.
• KILIÇ, S. (2019). Impact of Forward-Looking Disclosures on Stock Prices: Evidence from Borsa İstanbul, Business and Economics Research Journal, 10(4): 833-844.
• KORKAZ, T., YAMAN, S., METİN, S. (2017). Ülke kredi notlarının pay getirileri üzerindeki etkileri: Bist 30 endeksi üzerinde bir event study analizi, Namık Kemal Üniversitesi Sosyal Bilimler Metinleri ICOMEP Özel sayısı: 171-187.
• LI, H., VISALTANACHOTI, N., KESAYAN, P. (2004). Effects of credit rating announcements: the Swedish stock market, International Journal of Finance, 16(1): 2872-2891
• MARTELL, R. (2005). The effect of sovereign credit rating changes on emerging stock markets, Working Paper.
• MATEEV, M. (2014). The effect of sovereign credit rating announcements on emerging bond and stock markets: new evidences, Oxford Journal: An International Journal of Business & Economics, 7(1).
• MICHAELIDES, A., MILIDONIS, A., NISHIOTIS, G., PAPAKYRIAKOU, P. (2015), The adverse effects of systematic leakage ahead of official sovereign debt rating announcements, Journal of Financial Economics, 113 (3): 526-547
• NTV (2010), https://www.ntv.com.tr/ekonomi/sifirci-hocaya-kostebek-sorgusu,o08BI9A7yUGwOnEuyZA Duw, Accessed on February 6, 2020
• NYT, New York Times (2011), https://dealbook.nytimes.com/2011/08/15/was-there-insider-trading-on-s-p-sdowngrade, Accessed on February 2, 2020.
• MSCI, https://www.msci.com/emerging-markets, Accessed on February 13, 2020
• NORDEN, L., WEBER, M. (2004), Informational efficiency of credit default swap and stock markets: The impact of credit rating announcements, Journal of Banking & Finance, 28(11): 2813-2843.
• ŞENSOY, A., ERASLAN, V., ERTÜRK, M. (2016), Do sovereign rating announcements have an impact on regional stock market co-movements? The case of Central and Eastern Europe, Economic Systems, 40(4): 552-567.
• TIMMERMANS, M.A.J. (2012), Credit rating changes and the effect on stock prices: How credit rating changes affect stock prices in the European market, Master Thesis, Tilburg University.
• TRADING ECONOMICS, https://tradingeconomics.com/turkey/rating, Accessed on February 6, 2020
• YILDIRIM, H. H., YILDIZ, C., AYDEMİR, Ö. (2017). Kredi derecelendirme kuruluşlarından S&P, Moody’s ve Fitch’in Türkiye için yapmış oldukları not açıklamalarının hisse senedi endeksleri üzerine etkisi: Borsa İstanbul örneği 2012-2016, Maliye Finans Yazıları, 109: 9-30.