Do Upgradings and Downgradings Convey Information? An Event Study of the French Bond Market


  • The authors would like to thank the participants of the ‘Finance & Regulation’- Prism seminar of the University Paris 1 Panthéon-Sorbonne, as well as the two anonymous referees who greatly improved the quality of the study. This research has been supported by the French National Agency for Research (Agence Nationale pour la Recherche – convention: ANR-05-BLAN-0057-01). Any errors that may still be found in this text are entirely imputable to the authors.

‡Corresponding author: Professor Philippe Raimbourg, Université Paris 1 Panthéon-Sorbonne, 17 rue de la Sorbonne, 75005 PARIS France. Tel: +33 1 40 46 27 62. Fax: 33 1 40 46 31 77. E-mail:


This study has two purposes:

  • 1To present an alternative method for the study of events related to bond spreads applicable when only a small number of events is available;
  • 2To analyse the impact of downgradings and upgradings on the French financial market.

A small number of events can render the use of traditional methods based on the analysis of abnormal returns difficult. We suggest examining the stationarity of relative spreads and dating a possible interruption in the series by carrying out tests in increasingly wider time windows.

This method has been applied to assess the role of rating agencies in the French financial market. The results obtained are, in general, not only similar to those previously obtained in other markets, but also more accurate. The aggregate analysis shows an absence of reaction for upgradings while downgradings determine reaction on financial markets. However, if we expand the analysis to single issuers we find that downgradings had no relevant effect on financial markets in most cases. Only two issuers (France Telecom and Vivendi), with initially good, but rapidly deteriorating, credit reputation, experienced a significant rise of their spreads. In these cases, financial markets reacted prior to the downgrading by the agency. Tests based only on the analysis of the whole events would have led us, in the case of downgradings, to partially flawed conclusions.