Do Credit Rating Agencies Learn from the Options Market?

• 成果类型: Article
• 署名作者: Brockman, Paul; Subasi, Musa; Wang, Jeff; Zhang, Eliza
• 署名单位: Lehigh University; University System of Maryland; University of Maryland College Park; California State University System; San Diego State University; University of Washington; University of Washington Tacoma
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4980
• 发表日期: 2024
• 关键词: Credit rating; Credit risk; Default probability; credit rating accuracy; Options market

摘要

Do credit rating agencies (CRAs) learn from the options market? We examine this question by exploring the relation between options trading activity and credit rating accuracy. We find that as options trading volume increases, credit ratings become more responsive to expected credit risk and exhibit greater ability to predict future defaults. We also find that CRAs rely more on the options market as a source of ratings-related information when firm default risk is higher, options trading is more informative, managerprovided information is of lower quality, and firm uncertainty is higher. Our results are robust to a number of sensitivity tests, including alternative measures of options trading and credit rating accuracy. We reach similar inferences using various approaches to address endogeneity issues, including difference-in-difference analyses and an instrumental variables approach. Overall, our findings are consistent with the view that CRAs incorporate unique information from the options market into their rating decisions which, in turn, improves credit rating accuracy.