@article{c9f8b958b0f64f88acab0649835371f9,
title = "Rating labels and style investing: Evidence from Moody's rating recalibration",
abstract = "This paper investigates the role of style investing in comovement and return predictability. Using Moody's rating recalibration event to isolate the style effect, we find that changes in rating labels have powerful effects on comovement of municipal bond returns, trading activity, and volatility. Volatility-based comovement adds to the return comovement. Rating style investing induces return predictability and affects return formation, which interacts with investor sentiment. Shifts in the rating label drive these results through correlated trading activities, and the effects are reinforced by behavioral biases and trading frictions.",
keywords = "behavioral biases, rating recalibration, return predictability, style investing, systematic risk and asset pricing",
author = "Xinyuan Tao and Chunchi Wu",
note = "Funding Information: Xinyuan Tao is with New Jersey Institute of Technology and Chunchi Wu is with State University of New York at Buffalo. We thank an anonymous referee, Bing Han (Editor), Heitor Almeida, Junkyung Auh, Pedro Barroso, Elizabeth A. Berger, Jesse A. Blocher, Hui Chen, James Choi, Alexandre Corhay, Zhi Da, Francesco D'Acunto, Jennifer Dlugosz, Jefferson Duarte, Isil Erel, Wayne Ferson, Laurent Fr{\'e}sard, Jannet Gao, John Griffin, Gerard Hoberg, Craig Holden, John Hund, Philipp Illeditsch,Vincent Intintoli, Jessica Jeffers, Haibo Jiang, ChotibhNamho Kang, Paul Koch, Mattia Landoni, Christian Lundblad, Egor Matveyev, Benjamin Munyan, Andreas Neuhierl, Yoshio Nozawa, Miguel Palacios, Paolo Pasquariello, Alessandro Previtero, Yiming Qian, Ravi Sastry, Mehrdad Samadi, Amin Shams, Stephan Siegel, Matthew Spiegel, Kevin Tseng, Masahiro Watanabe, Jeffrey Wurgler, Mao Ye, Morad Zekhnini, and participants in the 2017 SFS Cavalcade Conference, 2017 China International Conference in Finance (CICF) and 2017 Financial Management Association Meetings for helpful suggestions and discussions. Publisher Copyright: {\textcopyright} 2021 Financial Management Association International",
year = "2021",
month = dec,
day = "1",
doi = "10.1111/fima.12348",
language = "English (US)",
volume = "50",
pages = "1047--1084",
journal = "Financial Management",
issn = "0046-3892",
publisher = "John Wiley and Sons Inc.",
number = "4",
}