Anticipation of reaction of stock markets to anticipated rating announcements by the market in a crisis context and investor behaviour: The case of MENA countries

Abstract

The study explores the reaction of stock markets to anticipated or unexpected rating announcements by the
market in a crisis context by conducting an empirical study on the MENA (Middle East and North Africa)
stock market over the period from December 2010 to August 2022. The results show that the crisis context
support the anticipation of bad ratings and neutral ratings as opposed to good ratings. These results
validate the asymmetry in investor reaction to announcements of anticipated rating downgrades compared
with announcements of upgrades in times of crisis. This reaction highlights the irrational behave of
investors in times of crisis. In fact, when investors detect a risk concerning the financial situation of a stock,
they anticipate a downgrade and react quickly, even before the official announcement of the downgrade,
by selling their shares on masse. This action will cause the share price to fall. Similarly, the market’s weak
reaction to early good announcements is explained by the fact that this type of announcement does not
provide them with any unknown information to guide their financial decisions.