Title: STOCK MARKET REACTION TO CREDIT RATING CHANGES: EVIDENCE FROM VIETNAMESE STOCK MARKET
Authors:
Tan Nghiem Le* and Bich Tuyen Duong
Abstract:
Recently, many studies on the factors affecting the stock market have been carried out in Vietnam, but there is a lack of research on credit rating information. This study aims to examine the reaction of the Vietnamese stock market to credit rating changes. The research is conducted based on the efficient market hypothesis, asymmetric information theory, and behavioral finance theory. The event study method is used to examine the change in stock return of market indexes (VN-Index and HNX) and industry indexes of 24 industries at the time of disclosure and 20 sessions before and after the announcement. At the same time, the study examines the announcement events of credit rating changes in the period from January 3, 2012 to September 12, 2018. The T-test results demonstrate that stock prices have a significant difference when credit rating information is published. This shows that the Vietnamese stock market is not efficient, stock prices traded on the market have not yet fully reflected the information published on the market. The results of this study are empirical evidence that reinforces the conclusions of previous studies on the underperforming stock market in Vietnam. When increasing credit ratings, most of the industry indexes reacted in the 5th session or later. Moreover, when the credit rating was downgraded, the market reacted more slowly, and the stock return of most indexes changed from the 14th session onwards. However, the stock market reaction was very diverse when the credit rating remained unchanged. Research indicates profitable opportunities for investors who know how to capture information and have good analytical techniques. At the same time, information transparency needs to be improved and the herd effect needs to be reduced to improve market efficiency.
Keywords: Credit rating, market efficiency, stock market reaction, stock return, event study method.
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