The Value of Ratings: Evidence from Their Introduction in Securities Markets

Asaf Bernstein, Carola Frydman and Eric Hilt

Journal of Political Economy, 2026, vol. 134, issue 3, 847 - 894

Abstract: We study the first-ever ratings for corporate securities. In 1909, John Moody published a book that partitioned the majority of listed railroad bonds into letter-graded ratings. These ratings had no regulatory implications and were largely explainable using publicly available information. We find that lower-than-market-implied ratings caused a rise in secondary market bond yields and that bonds that were rated experienced a substantial decline in their bid-ask spreads, consistent with reduced information asymmetries and improved liquidity. Our findings suggest that ratings can improve information transmission and highlight their potential value for the functioning of financial markets.

Date: 2026
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