The Effect of Municipal Bond Rating Change Announcements on Seasoned Bond Prices

Municipal Finance Journal, Fall 1994, 15(3): 17-35

Posted: 30 Aug 2014

See all articles by Barry R. Marks

Barry R. Marks

University of Houston, Clear Lake - School of Business and Public Administration

K. K. Raman

The University of Texas at San Antonio

Earl R. Wilson

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Date Written: 1994

Abstract

In the municipal bond market, announcements of changes in general obligation bond ratings by the rating agencies are typically made con­currently with announcements of new bond issues. Hence, prior research on the information content of municipal bond rating change announcements is subject to the possible confounding effects of concurrent announcements of new bond issues. Jantscher ( 1970) con­cluded that bonds sell at prices that reflect rating changes prior to the actual change announcement. Ingram et al. (1983), on the other hand, report that municipal bond prices respond contemporaneously to rat­ing change announcements, i.e., that the market is not able to antic­ipate rating revisions. However, since Ingram et al. (1983) did not con­trol for the potential information effects of concurrent new issues, their results could be misleading, whereas Jantscher only examined new issues. This paper examines the effect of rating change announcements on municipal seasoned bond prices after controlling for the potentially confounding effects of new bond issues.

Keywords: Government rating change announcements, Seasoned bond prices

JEL Classification: g18, l11, l15, l51, l80, m40, m41, m42, m48

Suggested Citation

Marks, Barry R. and Raman, K. K. and Wilson, Earl R., The Effect of Municipal Bond Rating Change Announcements on Seasoned Bond Prices (1994). Municipal Finance Journal, Fall 1994, 15(3): 17-35, Available at SSRN: https://ssrn.com/abstract=2488605

Barry R. Marks

University of Houston, Clear Lake - School of Business and Public Administration ( email )

Houston, TX 77058
United States

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

Earl R. Wilson

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

School of Accountancy
Columbia, MO 65211
United States
573-882-3225 (Phone)
573-882-2437 (Fax)

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