Does Sell-Side Debt Research Have Investment Value?

Accounting and Business Research, Forthcoming

52 Pages Posted: 25 Oct 2021 Last revised: 11 Jul 2022

See all articles by Sunhwa Choi

Sunhwa Choi

Seoul National University - Business School

Robert Kim

University of Massachusetts Boston

Date Written: October 20, 2021

Abstract

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

Choi, Sunhwa and Kim, Robert, Does Sell-Side Debt Research Have Investment Value? (October 20, 2021). Accounting and Business Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3946717 or http://dx.doi.org/10.2139/ssrn.3946717

Sunhwa Choi

Seoul National University - Business School ( email )

Seoul
Korea, Republic of (South Korea)

Robert Kim (Contact Author)

University of Massachusetts Boston ( email )

100 Morrissey Blvd.
College of Management
Boston, MA 02125
United States

HOME PAGE: http://ssrn.com/author=1376774

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