The Information Content of Security Analyses : Evidence from Standard & Poor's Common Stock Quality Ranking Changes

This paper examines stock price reactions to changes in Standard & Poor's common stock rankings. Using internal memoranda obtained directly from Standard & Poor's, an event study methodology, and a sample of 191 upgrades and 582 downgrades, we find that the majority of stock price reactions occur prior to memorandum dates. A Wall Street Journal Index search reveals that Standard & Poor's makes 97% of its ranking changes following earnings announcements. However, we find stock price reactions subsequent to ranking changes for four of six portfolios of upgrades and three of six portfolios of downgrades. These findings are not strong enough to suggest the existence of a ‘Standard & Poor's Anomaly.' Rather, we find further evidence in support of the post-earnings-announcement drift hypothesis