 Is there valuable private information in credit ratings?Emmanuel Alanis The North American Journal of Economics and Finance, 2020, vol. 54, issue C Abstract: Credit rating agencies (CRAs) contend their ratings contain a quantitative assessment based on hard information, and a qualitative adjustment based on private information. We study if the qualitative portion of ratings, generated with the companies’ own private information, contains valuable information for equity investors. We generate predicted ratings based on hard information alone and form portfolios of stocks based on the difference between observed and predicted ratings. Over a sample from 1998 to 2018, we find that stock portfolios formed on the basis of private information generate 2% to 4% in annual risk-adjusted returns. We also find that companies with positive private information have better future accounting performance. Our results suggest that CRAs bring valuable information to the market and investors could benefit from it. Keywords: Credit ratings; Risk-adjusted returns; Credit rating agencies; Ratings shopping (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301832 DOI: 10.1016/j.najef.2020.101293 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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