The majority of price movements that is caused by a rating action is explained by new information which is revealed at the time of the rating action. Typically companies reserve the right to hold back certain information from investors, clients, business partners and competitors. This can be long-term projections, business plans or internal analyses. Usually rating agencies have access to internal documents during their rating process. Therefore, the rating of a company reflects more information than available to the public and to institutional investors such as mutual funds or insurance companies. A rating change itself is therefore an information about a change of a company’s credit quality because it incorporates nonpublic information.
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