Information Effects of Changes to Analysts’ Recommendations: Morningstar Star Ratings Changes for Stocks

31 Pages Posted: 16 Aug 2017

See all articles by Paul J. Bolster

Paul J. Bolster

Northeastern University - Finance and Insurance Area

Emery A. Trahan

Northeastern University, Finance Group

Mahboubeh Ebrahimi

Northeastern University

Date Written: August 11, 2017

Abstract

We study the nature and impact of ratings changes for individual stocks provided to investors by Morningstar, Inc. Morningstar’s recommendations follow negative momentum for upgrades and positive momentum for downgrades. When ratings change, upgraded stocks experience positive abnormal returns, while downgraded stocks experience negative abnormal returns. Morningstar recommendations not only impact stock prices at announcement, but statistically significant abnormal returns occur over the following 30 trading days. Additional variables tracked by Morningstar, such as economic moat and uncertainty, explain variation in abnormal returns associated with ratings change announcements. Overall, the results suggest that Morningstar analysts provide valuable information to investors.

Keywords: Individual investor, Analysts’ recommendations, Investment decisions, Event studies

JEL Classification: G11, G12, G14

Suggested Citation

Bolster, Paul J. and Trahan, Emery A. and Ebrahimi, Mahboubeh, Information Effects of Changes to Analysts’ Recommendations: Morningstar Star Ratings Changes for Stocks (August 11, 2017). Northeastern U. D’Amore-McKim School of Business Research Paper No. 3018872. Available at SSRN: https://ssrn.com/abstract=3018872 or http://dx.doi.org/10.2139/ssrn.3018872

Paul J. Bolster

Northeastern University - Finance and Insurance Area ( email )

Boston, MA 02115
United States
617-373-5051 (Phone)
617-373-8798 (Fax)

Emery A. Trahan (Contact Author)

Northeastern University, Finance Group ( email )

Boston, MA 02115
United States

Mahboubeh Ebrahimi

Northeastern University ( email )

Boston, MA 02115
United States

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