This article examines the performance of emerging market bank stocks around the time of rating changes by major international agencies. The data suggest that downgrades on average have followed periods of negative cumulative abnormal returns, although upgrades have not followed periods of positive returns. More importantly, stock prices either do not respond to rating changes or respond in the opposite direction to what would be expected if announcements convey value-relevant information about financial health. The article concludes that there are limits to the extent that supervisors in emerging markets can rely on market participants to monitor the safety and soundness of banks.
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