@article {Bolsterjoi.2022.1.243, author = {Paul J. Bolster and Emery A. Trahan and Mahboubeh Ebrahimi}, title = {Trading Opportunities around Morningstar Stock Rating Changes}, elocation-id = {joi.2022.1.243}, year = {2022}, doi = {10.3905/joi.2022.1.243}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The authors examine Morningstar information changes stemming from changes in their 5-Star stock-rating system. Converse to many studies of other second-hand information effects, Morningstar rating changes lead to abnormal returns (ARs) that persist for 30 days subsequent to the information release. This information may be used to derive alpha-generating trading strategies. Statistically significant positive ARs persist for 30 days postannouncement for upgrades to 4 and 5 stars, while significant negative ARs persist for 30 days postannouncement for upgrades to 2 and 3 stars and for downgrades to 4, 3, 2, or 1 star. Traders can use this information to devise long, short, and long{\textendash}short trading strategies. Morningstar{\textquoteright}s analysis has high credibility, particularly with retail investors. Morningstar changes a stock{\textquoteright}s rating when the price of the stock moves further from the intrinsic value estimate derived by Morningstar{\textquoteright}s model, suggesting that its analysis of the current stock price relative to intrinsic value and the timing of the rating change provide some relevant information to the market.}, issn = {1068-0896}, URL = {https://joi.pm-research.com/content/early/2022/09/27/joi.2022.1.243}, eprint = {https://joi.pm-research.com/content/early/2022/09/27/joi.2022.1.243.full.pdf}, journal = {The Journal of Investing} }