Abstract
This paper aims to investigate whether the effect of Sovereign rating
change is symmetrical or not. As well as are the effects are same of Sovereign
rating upgrades and downgrades announcement on stock return in the
Amman Stock Exchange (ASE).
In this study, the event study methodology was applied to analyse the effect
of ten announcements (included four upgrades and six downgrades) from the
rating agency S&P500 and Moody’s over the period 2003-2013. By using the
daily closing price of Amman free float market index as a proxy for return and
an event period which are set as [-10, +10] days and [-5, +5] days. The
findings of the study reveal the following: an asymmetrical effect of sovereign
rating announcement on Amman Stock Exchange returns, upgrades
rating has a significant positive reaction on prices (two out of four upgrade
events have a significant positive reaction on stock price), and downgrades
rating has no significant reaction on prices (one out of six downgrade events
has a significant negative reaction on stock price). These findings would be
useful to issuers, investors, and decision makers in assessing the credit risk of
Amman stock exchange issuance