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The Long‐Run Stock Returns Following Bond Ratings Changes
Open accessAbstract
Using essentially all Moody's bond ratings changes between 1970 and 1997, we find no reliable abnormal returns following upgrades. However, we find negative abnormal returns on the magnitude of 10 to 14 percent in the first year following downgrades. Additional results reveal that this underperformance is especially pronounced for small, low‐credit‐quality firms. Also, downgrades underperform in nearly all years in the sample, and a large part of the abnormal returns occur at subsequent earnings announcements. Thus, the evidence suggests that the poor returns result from an underreaction to the announcement of downgrades, rather than from lower systematic risk.
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Citations
Cited by
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MCLEAN, R. D., & PONTIFF, J. (2016) · The Journal of Finance · doi:10.1111/jofi.12365 · Cited by 1,566
Driven to Distraction: Extraneous Events and Underreaction to Earnings News
HIRSHLEIFER, D., LIM, S. S., & TEOH, S. H. (2009) · The Journal of Finance · doi:10.1111/j.1540-6261.2009.01501.x · Cited by 1,542
BOLTON, P., FREIXAS, X., & SHAPIRO, J. (2012) · The Journal of Finance · doi:10.1111/j.1540-6261.2011.01708.x · Cited by 940
Metadata
- Authors
- Dichev, I. D., & Piotroski, J. D.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2001-02
- Volume
- 56
- Issue
- 1
- Pages
- 173-203
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W3124280494
- Cited by
- 606
- References
- 0
- FWCI
- 18.69
- Type
- journal article
- Language
- en
- Open access
- bronze
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