Effect on rating on price

[higaurav]

Hi David,

Q 15: Which is NOT given as a factor to explain why rating changes impact stock prices? This is from credit round 1 - Guess it should be impact on bond prices.. as I could not understand from the answers how is it impact on the stock prices. Pls suggest.

Rgrds
OM

 

[David Harper CFA FRM]

Hi OM,

Fair point, I will change to "impact on bond or stock prices." I did mean to refer to p 38-39 of De Servigny (Impact of Rating Change on Stock Prices) but, as written, I think the question is unfair.

Just to share the intended meaning: De Servigny reviews the impact of rating changes on bond prices (e.g., downgrade, supply/demand, rating triggers, credit derivatives). Then he begins an argument that impacts on bond returns like translate into impact on a firm's equity (stock returns), in addition. So, I just *meant* that whatever impacts bond prices can impact stock prices, too. But, as the latter is more nuanced and equivocal in p 38 to 39, I think the question should refer to impact on either. Or, better, just bonds, as you suggest.

Thanks, David

 

[higaurav]

David, Many thanks

 

[PL]

Hello David and Merry Christmas,

I want to calculate the PD and (Fitch) rating equivalent of a company, from its unrated bond market price?
Could you please assist me?

Thank you in advance,
PL