The Information Content of Security Analyses: Evidence from Standard & Poor's Common Stock Quality Ranking Changes

Journal of Business Finance & Accounting, 1995, Vol. 22, No. 7 (October), 975-989

24 Pages Posted: 24 Feb 2013  

James Felton

Central Michigan University - Department of Finance and Law

Douglas Hearth

University of Arkansas - Department of Finance

Pu Liu

University of Arkansas - Sam M. Walton College of Business

Date Written: September 1, 1994

Abstract

This paper examines stock price reactions to changes in Standard & Poor’s common stock rankings. Using internal memoranda obtained directly from Standard & Poor’s, an event study methodology, and a sample of 191 upgrades and 582 downgrades, we find that the majority of stock price reactions occur prior to memorandum dates. A Wall Street Journal Index search reveals that Standard & Poor’s makes 97% of its ranking changes following earnings announcements. However, we find stock price reactions subsequent to ranking changes for four of six portfolios of upgrades and three of six portfolios of downgrades. These findings are not strong enough to suggest the existence of a ‘Standard & Poor’s Anomaly.’ Rather, we find further evidence in support of the post-earnings-announcement drift hypothesis.

Keywords: Standard & Poor’s, common stock rankings, quality rankings, Stock Guide, post-earnings-announcement drift

JEL Classification: G12, G14

Suggested Citation

Felton, James and Hearth, Douglas and Liu, Pu, The Information Content of Security Analyses: Evidence from Standard & Poor's Common Stock Quality Ranking Changes (September 1, 1994). Journal of Business Finance & Accounting, 1995, Vol. 22, No. 7 (October), 975-989. Available at SSRN: https://ssrn.com/abstract=2222801

James Felton (Contact Author)

Central Michigan University - Department of Finance and Law ( email )

332 Sloan Hall
Mount Pleasant, MI 48859
989-774-3269 (Phone)
989-774-6456 (Fax)

Douglas Hearth

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States
501-575-2044 (Phone)

Pu Liu

University of Arkansas - Sam M. Walton College of Business ( email )

Department of Finance
Fayetteville, AR 72701
United States

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