The effect of credit and rating events on credit default swap and equity markets

The global financial crisis brought increased attention to the importance of rating agencies and their valuation process. There is a broad consensus that credit rating agencies bear at least some responsibility for the crisis. Their ratings were too lax, and they were unable to detect any deterioration of the issuer’s credit quality in a timely manner. This thesis offers a comprehensive analysis of the effect of credit rating adjustments on the debt and equity markets and the efficiency of the CDS market. By not only examining the impact of rating changes in general, but also in different regions and during the financial crisis, clearer conclusions can be drawn in the importance of rating changes. In addition, the efficiency of the CDS market and one of the first worldwide CDS regulations offer valuable insights in the understanding of credit valuation. This cumulative dissertation comprises four stand-alone papers. All papers have been published or accepted for publication and are available on the respective journal website