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Bond Rating Agencies and Stock Analysts: Who Knows What When?

Louis H. Ederington and Jeremy C. Goh
The Journal of Financial and Quantitative Analysis
Vol. 33, No. 4 (Dec., 1998), pp. 569-585
DOI: 10.2307/2331132
Stable URL: http://www.jstor.org/stable/2331132
Page Count: 17
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Bond Rating Agencies and Stock Analysts: Who Knows What When?
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Abstract

Both bond rating agencies and stock analysts evaluate publicly traded companies and communicate their opinions to investors. Comparing the timeliness of each, we find that Granger causality flows both ways. While most bond downgrades are preceded by declines in actual and forecast earnings, both actual earnings and forecast of future earnings tend to fall following downgrades. Although part of this post-downgrade forecast revision can be attributed to negative news regarding actual earnings, most appears to be reaction to the downgrade itself. We find little change in actual earnings following upgrades. Analysts, however, tend to increase their forecasts of future earnings.

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