Rating Changes and Competing Information: Evidence on Publicly Traded Insurance Firms

32 Pages Posted: 9 Aug 2018

See all articles by Leon Chen

Leon Chen

Minnesota State University, Mankato

Steven W. Pottier

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Date Written: September 2018

Abstract

We examine the predictive ability of three competing sources of financial information—rating changes, profit changes, and excess stock returns. We find the following significant relations between current and lagged values of these three endogenous variables: (1) rating changes are positively related to past excess stock returns, (2) profit changes are positively related to past excess stock returns, and (3) profit changes and excess stock returns are mean reverting. In addition, profit changes are substantially more predictable than rating changes or excess stock returns, and past values of profit changes account for most of the observed ability to predict current profit changes. In contrast, past profit changes have little predictive ability in relation to excess stock returns or rating changes.

Suggested Citation

Chen, Leon and Pottier, Steven W., Rating Changes and Competing Information: Evidence on Publicly Traded Insurance Firms (September 2018). Journal of Risk and Insurance, Vol. 85, Issue 3, pp. 811-842, 2018. Available at SSRN: https://ssrn.com/abstract=3228193 or http://dx.doi.org/10.1111/jori.12181

Leon Chen (Contact Author)

Minnesota State University, Mankato ( email )

150 Morris Hall
Mankato, MN Minnesota 56001
United States

Steven W. Pottier

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States
706-542-3786 (Phone)
706-542-4295 (Fax)

HOME PAGE: http://www.terry.uga.edu/insurance/pottier.html

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
58
PlumX Metrics