The value of stability ratings to the Canadian income trust market

H. Semih Yildirim, Prem Mathew and Priscilla Neeliah-Chinniah

Applied Financial Economics, 2008, vol. 18, issue 18, 1465-1474

Abstract: The Canadian income trust market has witnessed phenomenal growth over the past few years. Limited institutional investment and analyst coverage in these securities creates an asset class with little monitoring or unbiased evaluation. Stability ratings, therefore, become crucial in providing information to investors about the quality of trusts. We find that ratings in the oil and gas and utility sectors provide a credible signal of quality. However, in the business trust sector, with the greatest diversity of underlying operating companies and need for evaluation, stability ratings are not as useful in providing a separating equilibrium between the rated and unrated trusts. We also find that market participants' reactions to new information releases in this sector tend to be greater for unrated trusts.

Date: 2008
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DOI: 10.1080/09603100701704264

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