Journal of Corporate Finance Vol. 58 2019
Follow the money: Investor trading around investor-paid credit rating changes
Abstract
Using institutional equity trading data, we find that a set of small institutional investors consistently follow credit ratings issued by an investor-paid rating agency in their trading decisions. Although rating information is credit related, we find that these followers often respond more strongly to investor-paid ratings than to influential trading signals, such as earnings announcements, analysts' earnings forecast revisions, and recommendation changes. Followers outperform non-followers, and show improved trading performance after becoming followers. We conclude that investor-paid rating agencies offer small institutional investors a cost-effective alternative to in-house research.
- DOI
- 10.1016/j.jcorpfin.2019.04.008
- Volume
- 58
- Pages
- 68-91
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref