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File name: SSRN-id472223. ; Size: 484K
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Credit Ratings and Stock Liquidity
Elizabeth R. Odders-White
University of Wisconsin - Madison - Department of Finance, Investment and Banking
Mark J. Ready
University of Wisconsin - Madison - Department of Finance, Investment and Banking
December 2003
AFA 2004 San Diego Meetings
Abstract:
We analyze contemporaneous and predictive relations between debt ratings and measures of equity market liquidity, and find that common measures of adverse selection, which reflect a portion of the uncertainty about future firm value, are larger when debt ratings are poorer. This relation holds even after controlling for many other observable factors. We also show that ratings changes can be predicted using current levels of adverse selection, which suggests that credit rating agencies sometimes react slowly to new information. Collectively, our results offer new insights into the value of debt ratings, the specific nature of the information they contain, and the speed with which they reflect changes in uncertainty.
Number of Pages in PDF File: 45
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Date posted: November 23, 2003
Suggested CitationOdders-White, Elizabeth R. and Ready, Mark J., Credit Ratings and Stock Liquidity (December 2003). AFA 2004 San Diego Meetings. Available at SSRN: http://ssrn.com/abstract=472223 or http://dx.doi.org/10.2139/ssrn.472223
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