The authors examine the reaction of common stock returns to bond rating changes. While recent studies find a significant negative stock response to downgrades, they argue that this reaction should not be expected for all downgrades because some rating changes are anticipated by market participants and downgrades because of an anticipated move to transfer wealth from bondholders to stockholders should be good news for stockholders. The authors find that downgrades associated with deteriorating financial prospects convey new negative information to the capital market but that downgrades due to changes in firms' leverage do not.

The authors examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets. They find these announcements are responsible for most of the observed time-of-day and day-of-the-week volatility patterns in these markets. While the bulk of the price adjustment to a major announcement occurs within the first minute, volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours. Nonetheless, these subsequent price adjustments are basically independent of the first minute's return. The authors identify those announcements with the greatest impact on these markets.