Do bank stock prices react to credit rating changes that do not signal changes in default risk estimates? On July 20, 2011, Fitch Ratings refined their bank standalone ratings, which measure intrinsic financial strength, from a 9-point to a 21-point scale. This refinement did not affect bank all-in ratings, which measure default risk by combining standalone ratings with assessments of extraordinary sovereign support. For several metrics of the surprise component in standalone rating refinements, we find more positive than negative ratings surprises, in particular for large banks. We also find that shareholders rewarded banks receiving positive rating surprises.
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