Market impact under a new regulatory regime: Credit rating agencies in Europe

We investigate whether there are any identifiable differences in market perceptions of rating news released by Moody's, S&P and Fitch following the establishment of a new regulatory regime in July 2011, when the European Securities and Markets Authority assumed responsibility for rating agencies' regulation in Europe. We focus the analysis on the impact of bank rating actions on stock returns and volatility during 2008–2013. Among the intended effects of the new regulatory regime are higher rating quality and enhanced market stability, yet we find very mixed evidence. Many differentials in market responses across CRAs are identified, which mean that a consistent effect of the new regulatory regime is not discernible.