Effects of Analysts’ Ratings on Insurer Stock Returns: Evidence of Asymmetric Responses |
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| Authors: | Martin Halek David L Eckles |
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| Institution: | 1. Martin Halek is at the Wisconsin School of Business, Department of Actuarial Science, Risk Management and Insurance, University of Wisconsin–Madison;2. David L. Eckles is at the Terry College of Business, Department of Insurance, Legal Studies, and Real Estate, University of Georgia. |
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| 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. |
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