Premium
Effects of Analysts’ Ratings on Insurer Stock Returns: Evidence of Asymmetric Responses
Author(s) -
Halek Martin,
Eckles David L.
Publication year - 2010
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2010.01368.x
Subject(s) - downgrade , event study , credit rating , stock (firearms) , economics , business , stock price , information asymmetry , agency cost , actuarial science , financial economics , econometrics , monetary economics , finance , mechanical engineering , paleontology , corporate governance , context (archaeology) , computer security , series (stratigraphy) , computer science , engineering , biology , shareholder
We examine the information value contained in insurer rating changes. Using a contemporary event study approach, we document an asymmetric reaction of stock prices to rating changes: downgrades cut share prices by approximately 7 percent but upgrades have little significant effect. This result varies across agencies as share prices react more strongly to A.M. Best and Standard & Poor's downgrades than to Moody's. We observe a similar asymmetric reaction to rating changes subject to a common rating benchmark. Finally, we find that prices fall most dramatically when a rating downgrade from one rating agency follows a downgrade from another agency.