Uninformative news, limited attention and institutional investors

Using the universe of transaction‐level data in the U.S. corporate bond market around uninformative downgrades, we find an abnormal increase in trading volume, abnormal bond returns, and a subsequent reversal. On the contrary, we do not find a reversal for abnormal bond returns associated with informative rating actions. We then focus on the largest, domestic, institutional investor from our sample, and match individual investment transactions to firm characteristics. We document an association between restatements and abnormal trading on uninformative news. These results provide supportive evidence that some institutional investors perceive uninformative downgrades as informative, hence leading to short‐lived mispricing episodes.