Date of Graduation


Document Type


Degree Name

Doctor of Philosophy in Business Administration (PhD)

Degree Level





Pu Liu

Committee Member

Douglas Hearth

Second Committee Member

Thomas McKinnon


Stocks, stock rankings, risk, standard deviation


This study examines the information content of Standard & Poor's common stock ranking changes. These rankings are derived from a system which begins with a computer-generated score for per-share growth, stability, and cyclicality of earnings and dividends for the most recent ten years of available data. Standard & Poor's then makes adjustments to the scores based on firm size, sales volume, "relative current standing,'1 and special considerations. The eight rankings are as follows: A+ (Highest), A (High), A- (Above Average), B+ (Average), B (Below Average), B- (Lower), C (Lowest), and D (In Reorganization). Although the rankings are not purported to be buy or sell recommendations, they do incorporate information provided by standard & Poor's on which investors may base investment decisions. Haugen [1979], and Muller, Fielitz, and Greene [1983, 1984] find that the rankings are closely related to risk, as measured by beta and the standard deviation of returns, while the rankings are not a reliable measure of return. Standard & Poor's makes common stock ranking changes daily. A ranking change can be either an upgrade, a downgrade, the initiation of a ranking, or the withdrawal of a ranking. The ranking changes are initially revealed by Standard & Poor's via internal memoranda. The memoranda are released daily to a time-share service which provides the information to its customers. The ranking changes are subsequently published at the end of the month in the Stock Guide. Daily memoranda for the 1,879 ranking changes from June 1985 to May 1987 were obtained from Standard & Poor's. Using the market model, stock prices are found to be fully adjusted by day 0, the memorandum date, for both the All Upgrades and the All Downgrades portfolios. However, the adjustment process differs by type of ranking change. The results from a Wall Street Journal Index search indicate that Standard & Poor's changes rankings following earnings announcements. While no relation is found between rankings and return, a close relation is found between rankings and risk, both before and after a ranking change. Also, a statistically significant fall in the mean beta for the All Upgrades portfolio is found following the memorandum date. Thus, firms upgraded by Standard & Poor's are found to have less risk in the post-event period than in the pre-event period.