Information Event Intensity and Stock Return Synchronicity: Evidence From Credit Rating Changes

This chapter examines the event intensity rationale for interpreting the heterogeneity in stock return synchronicity. Using bond rating changes as a proxy for information event intensity, we find a robust negative relationship between rating changes and stock return synchronicity. This relationship is more pronounced for firm-years with rating downgrades or larger magnitude of rating changes, firms listed on NYSE/AMEX, and markets with lower volatility. In contrast, the negative impact of rating changes on stock return synchronicity weakens after the implementation of TRACE and during the financial crisis period.