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We examine the determinants and the informativeness of financial analysts' risk ratings using a large sample of research reports issued by Salomon Smith Barney, now Citigroup, over the period 1997–2003. We find that the cross‐sectional variation in risk ratings is largely explained by variables commonly viewed as measures of risk, such as idiosyncratic risk, size, book‐to‐market, and leverage. In addition, earnings‐based measures of risk, such as earnings quality and accounting losses, also contribute to explaining the cross‐sectional variation in the risk ratings. Finally, we document that the risk ratings can be used to predict future return volatility after controlling for other predictors of future volatility. We conclude that analysts play an important role as providers of information about investment risk.

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This paper provides evidence that pension regulations can incentivize or curb risk shifting in the investment of defined benefit (DB) plan assets. We document that in the U.S., whereby the pension insurance premium charged by the Pension Benefit Guaranty Corporation (PBGC) is largely flat, financially distressed firms with severely underfunded plans shift pension investment risk. We further find that risk shifting is mitigated in the U.K. after the implementation of risk-adjusted pension insurance premium, and in the Netherlands where full pension funding is mandatory. Overall the results in this paper lend support to the view that structural flaws in the U.S. statutory pension insurance scheme incentivize high-risk sponsors to gamble their pension assets when distress terminations of their plans become foreseeable. JEL Classification: G11; G30; G32