Impact of Credit Rating Upgrades on US Stocks
## Impact of Credit Rating Upgrades on US Stocks
This project conducted an event study to analyze the impact of credit rating upgrades on the stock performance of US companies. The research aimed to determine if and how credit rating upgrades by agencies like S&P, Moody's, or Fitch influence stock returns.
### Methodology
* **Data Collection**: Utilized Capital IQ to gather 11 years of historical data on US stock prices and corresponding credit rating upgrade announcements.
* **Event Window Definition**: Defined an event window around the credit rating upgrade announcement date to observe stock price reactions.
* **Abnormal Returns Calculation**:
* **Buy-and-Hold Abnormal Returns (BHAR)**: Calculated the cumulative abnormal returns over the event window, comparing the actual stock return to a benchmark return (e.g., market index return).
* **Cumulative Abnormal Returns (CAR)**: Calculated the sum of daily abnormal returns over the event window. Abnormal returns were derived by subtracting the expected return (based on a market model) from the actual return.
* **Statistical Analysis**: Performed statistical tests to determine the significance of the observed abnormal returns, indicating whether credit rating upgrades have a statistically significant impact on stock prices.
* **Tooling**: All data processing, calculations, and analysis were performed efficiently using Microsoft Excel.
### Key Findings (Hypothetical)
* The analysis revealed a statistically significant positive abnormal return around the credit rating upgrade announcements, suggesting that the market reacts favorably to such news.
* The impact was more pronounced for certain industries or company sizes.
### Significance
This project demonstrates proficiency in conducting event studies, a common methodology in financial research. It provides insights into market efficiency and how new information (like credit rating changes) is incorporated into asset prices, which is valuable for investors and financial analysts.