Effects of Analysts’ Ratings on Insurer Stock Returns: Evidence of Asymmetric Responses

Martin Halek and David L. Eckles

Journal of Risk & Insurance, 2010, vol. 77, issue 4, 801-827

Abstract: We examine the information value contained in insurer rating changes. Using a contemporary event study approach, we document an asymmetric reaction of stock prices to rating changes: downgrades cut share prices by approximately 7 percent but upgrades have little significant effect. This result varies across agencies as share prices react more strongly to A.M. Best and Standard & Poor's downgrades than to Moody's. We observe a similar asymmetric reaction to rating changes subject to a common rating benchmark. Finally, we find that prices fall most dramatically when a rating downgrade from one rating agency follows a downgrade from another agency.

Date: 2010
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https://doi.org/10.1111/j.1539-6975.2010.01368.x

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