Does Sell-Side Debt Research Have Investment Value?
Accounting and Business Research, Forthcoming
52 Pages Posted: 25 Oct 2021 Last revised: 11 Jul 2022
Date Written: October 20, 2021
This study examines whether sell-side debt research has investment value for debt investors. We find that both the levels of and changes in recommendations are associated with event-time abnormal bond returns, and that changes in recommendations (i.e., upgrades and downgrades) are associated with stronger price reactions. More importantly, we find that changes in recommendations are associated with a significant post-event bond price drift, suggesting delayed market reactions to recommendation changes. The calendar-time portfolio approach of buying (selling) bonds following upgrades (downgrades) generates significant abnormal bond returns. In addition, we present new evidence that debt analysts often provide different recommendations for bonds issued by a firm to reflect different bond-specific characteristics. Overall, our results suggest that debt analysts’ recommendations have investment value.
Keywords: bond returns, debt analysts, market efficiency, recommendations
JEL Classification: G14, M41
Suggested Citation: Suggested Citation