In this paper we examine the relationship between bond re-ratings and changes in systematic risk. Using both time series and cross-sectional regressions, we find that upgrades are not associated with a change in beta. Across the entire sample, downgrades are associated with an increase in beta. Further, the increase in beta is positively correlated with firm size. There is no evidence that movement within or across rating categories, the number of grades changed, or a change across the investment grade category have a differential impact on the change in beta. IntroductionDoes a bond re-rating signal a decline in the expected earnings of a firm, or does it indicate a shift in the riskiness of the firm? If a debt rating change occurs because the rating agency expects a change in future cash flows, reaction to a downgrade should be a shortlived abnormal return. If the downgrade occurs instead because of a fundamental shift in the risk of the firm, a shift in beta would imply a higher required rate of return for the firm.Our analysis of the market's reaction to bond reratings yields no evidence of a beta shift around a debt rating increase. On average, however, rating decreases are associated with beta increases, with the increase in beta positively correlated with firm size. We can find no evidence that movement within or across rating cate-

The concept that portfolio betas are more stable than betas for individual securities has become the ‘conventional wisdom’ in finance; statements to this effect may be found in many popular finance textbooks. The objective of this paper is to challenge the conventional wisdom. A random sample of individual stock returns and portfolio returns is used to compare the empirical distribution of beta shifts for individual firms and portfolios. The number of statistically significant changes in beta are no greater for individual securities than for portfolios.

In this paper, we examine the stock market reaction to dividend announcements. A sample of dividend increases and decreases is partitioned by payout ratio increases and decreases. Previous research has examined the differential reaction to payout ratio increases and decreases only for dividend increases. In addition to an event study, cross‐sectional regressions are estimated using the percent changes in payout ratio and dividend to explain abnormal returns. We conclude that payout ratio changes appear to be only an artifact of an earnings stream that is more variable than the dividend stream, rather than revealing any significant shifts in managerial policy.

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