Are investors fixated on credit ratings? Reinterpreting the municipal bond recalibration

Leo Tang; Pei Li

doi:10.1016/j.frl.2020.101449

Are investors fixated on credit ratings? Reinterpreting the municipal bond recalibration

Leo Tang, Pei Li

Research output: Contribution to journal › Article › peer-review

Abstract

Cornaggia et al. (2017) construe positive investor reactions to Moody's 2010 recalibration as evidence that credit ratings matter. However, the purpose of recalibration was officially discussed by Moody's as early as 2002. Furthermore, for most bonds, the implementation of recalibration presented limited information and followed an algorithm which was published prior to the implementation date. We interpret investor reactions on the implementation of recalibration as more consistent with evidence of investor fixation towards credit ratings.

Original language	English (US)
Article number	101449
Journal	Finance Research Letters
Volume	38
DOIs	https://doi.org/10.1016/j.frl.2020.101449
State	Published - Jan 2021
Externally published	Yes

All Science Journal Classification (ASJC) codes

Finance

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10.1016/j.frl.2020.101449

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title = "Are investors fixated on credit ratings? Reinterpreting the municipal bond recalibration",

abstract = "Cornaggia et al. (2017) construe positive investor reactions to Moody's 2010 recalibration as evidence that credit ratings matter. However, the purpose of recalibration was officially discussed by Moody's as early as 2002. Furthermore, for most bonds, the implementation of recalibration presented limited information and followed an algorithm which was published prior to the implementation date. We interpret investor reactions on the implementation of recalibration as more consistent with evidence of investor fixation towards credit ratings.",

author = "Leo Tang and Pei Li",

note = "Funding Information: We thank Narjess Boubakri (editor), Bikki Jaggi, Marietta Peytcheva, Bharat Sarath, two anonymous reviewers, seminar participants at Lehigh University and San Diego State University, and conference participants at the 2017 American Accounting Association annual meeting for helpful comments. All errors remain our responsibility. Publisher Copyright: {\textcopyright} 2020 Elsevier Inc.",

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N2 - Cornaggia et al. (2017) construe positive investor reactions to Moody's 2010 recalibration as evidence that credit ratings matter. However, the purpose of recalibration was officially discussed by Moody's as early as 2002. Furthermore, for most bonds, the implementation of recalibration presented limited information and followed an algorithm which was published prior to the implementation date. We interpret investor reactions on the implementation of recalibration as more consistent with evidence of investor fixation towards credit ratings.

AB - Cornaggia et al. (2017) construe positive investor reactions to Moody's 2010 recalibration as evidence that credit ratings matter. However, the purpose of recalibration was officially discussed by Moody's as early as 2002. Furthermore, for most bonds, the implementation of recalibration presented limited information and followed an algorithm which was published prior to the implementation date. We interpret investor reactions on the implementation of recalibration as more consistent with evidence of investor fixation towards credit ratings.

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Are investors fixated on credit ratings? Reinterpreting the municipal bond recalibration

Abstract

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