Do Upgrades Matter? Evidence from Trading Volume

63 Pages Posted: 17 Jun 2015 Last revised: 19 Jun 2020

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Jennifer L. Koski

University of Washington - Michael G. Foster School of Business

Andrew F. Siegel

University of Washington - Department of Finance and Business Economics; National Bureau of Economic Research (NBER)

Date Written: July 18, 2017

Abstract

Prior research documents no significant abnormal returns around upgrades of credit ratings, suggesting that upgrades do not convey new information. These tests are limited by lack of data, liquidity screens, and ambiguous predictions. We extend prior research using trading volume. Because volume is highly non-normally distributed (especially in the bond market), we derive a new, more powerful nonparametric test statistic that can be used in other applications. Our results show significant abnormal volume in both stock and bond markets around both upgrades and downgrades. Some of this volume is attributable to credit-ratings-based regulations and other factors. Controlling for other effects, we also find evidence that upgrade announcements contain information.

Keywords: Credit Ratings, Volume, Information, Nonparametric Tests

JEL Classification: C14, G12, G14, G24, G32

Suggested Citation

Brogaard, Jonathan and Koski, Jennifer Lynch and Siegel, Andrew F., Do Upgrades Matter? Evidence from Trading Volume (July 18, 2017). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2619522 or http://dx.doi.org/10.2139/ssrn.2619522

Jonathan Brogaard (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Jennifer Lynch Koski

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-7975 (Phone)
206-685-9392 (Fax)

Andrew F. Siegel

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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