Credit rating and stock return comovement
Shen, Jianfeng, Zhang, Huiping, and Zhang, Weiqi (2025) Credit rating and stock return comovement. Journal of Banking and Finance, 177. 107474.
|
PDF (Published Version)
- Published Version
Available under License Creative Commons Attribution. Download (642kB) | Preview |
Abstract
Firms with similar credit ratings, particularly high-yield ones, exhibit strong comovement in stock returns. After a firm is downgraded to high-yield status, it comoves more with other high-yield firms and less with investment-grade ones, a pattern not fully explained by changes in fundamentals or other firm characteristics. We find evidence that suggests the investor clientele explanation for rating-related comovement, potentially arising from heterogeneous lottery preferences. High-yield-averse funds reduce their holdings of firms being downgraded to high-yield status, particularly those that are more lottery-like, much more significantly than high-yield-prone funds. Furthermore, a firm’s stock returns become sensitive to flows into high-yield-prone funds after being downgraded to high-yield status, consistent with the price impact of rating-based category investing.
| Item ID: | 85600 |
|---|---|
| Item Type: | Article (Research - C1) |
| ISSN: | 1872-6372 |
| Copyright Information: | © 2025 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). |
| Date Deposited: | 27 May 2025 23:10 |
| FoR Codes: | 38 ECONOMICS > 3801 Applied economics > 380107 Financial economics @ 100% |
| SEO Codes: | 11 COMMERCIAL SERVICES AND TOURISM > 1102 Financial services > 110201 Finance services @ 100% |
| Downloads: |
Total: 1 Last 12 Months: 1 |
| More Statistics |
Actions (Repository Staff Only)
 |
Item Control Page |