The Credit Rating Agencies — Are They Reliable? A Study of Sovereign Ratings (original) (raw)

Understanding the determinants of sovereign debt ratings: Evidence for the two leading agencies

Journal of Economics and Finance, 2003

I conduct an analysis of the possible determinants of sovereign credit ratings assigned by the two leading credit rating agencies, Moody's and Standard and Poor's, by using both a linear and a logistic transformation of the rating scales. Of the large number of variables that can be used, the set of explanatory variables selected in this study is significant in explaining the credit ratings. Namely, six variables appear to be the most relevant to determine a country's credit rating: GDP per capita, external debt, level of economic development, default history, real growth rate and inflation rate.

Understanding the Determinants of Government Debt Ratings: Evidence for the Two Leading Agencies

SSRN Electronic Journal, 2000

Determinants and Impact of Sovereign Credit Ratings

The Journal of Fixed Income, 1996

n recent years, the demand for sovereign credit ratings-the risk assessments assigned by the credit rating agencies to the obligations of central governments-has increased dramatically. More governments with greater default risk and more companies domiciled in riskier host countries are borrowing in international bond markets. Although foreign government officials generally cooperate with the agencies, rating assignments that are lower than anticipated often prompt issuers to question the consistency and rationale of sovereign ratings. How clear are the criteria underlying sovereign ratings? Moreover, how much of an impact do ratings have on borrowing costs for sovereigns?

Credit default swaps: implied ratings versus official ones

4OR, 2012

Recently, in line with the progressive development of the credit derivatives market, the academic research has begun to explore the relationship between Credit Default Swap market and rating events. In this paper, following a market based approach, we calibrate an Implied Rating model on Credit Default Swap market spreads. The non parametric mapping of Implied Ratings is calibrated on a large data set of Credit Default Swap quotes that includes the years of financial turmoils. This allows also to investigate the existence of possible differences between normal and abnormal market conditions. Unlike other models, the one proposed considers a linear penalty function which allows to evaluate market quotes in a neutral way and to formalize a more computationally efficient programming model. We compare the behaviors of credit rating agencies in different markets (EU and USA) and in different sub-periods, in order to analyze whether Implied Rating changes anticipate or follow the effective rating changes supplied by Fitch Ratings, Moody's and Standard and Poor's.

Modelling Sovereign Ratings and Transition Probabilities: New Evidence

In this paper, we employ sovereign ratings data for 129 countries, spanning the period 1990 to 2006, to investigate rating transition probabilities in the sovereign context. Our key goal is to suggest and evaluate a practical approach to constructing conditional sovereign default probabilities, given the limited amount of sovereign rating data. Our modelling approach conditions transition probabilities upon market and obligor-specific factors. While our models of rating levels perform well, sovereign rating transitions, particularly upgrades, prove more difficult to model. However, our approach performs well out-of-sample when predicting deteriorations in credit quality and as such would be useful to banks aiming to calculate the VaR of portfolios held within a particular sovereign market. Moreover, we compare the determinants of sovereign ratings and rating transitions of the three major rating agencies. We find some variation in the factors which affect rating levels and rating transitions across the three agencies.

ÜLKE KREDİ NOTLARININ BELİRLEYİCİLERİ: TÜRKİYE'NİN KREDİ NOTUNUN ÜLKE KARŞILAŞTIRMALI ANALİZİ

Uluslararası finansal ve ekonomik bütünleşmenin artmasıyla birlikte, ülke kredi notları küresel sermaye akımını yönlendiren en önemli unsurlardan biri haline gelmiş ve kredi derecelendirme kuruluşlarının (KDK) küresel ekonomi ve ülke ekonomileri üzerindeki etkileri artmıştır. Bununla birlikte, 1990’lı yıllarda yaşanan ekonomik krizlerde ve 2008 yılında başlayan küresel krizde iyi bir sınav veremeyen KDK’lar, giderek artan eleştirilere maruz kalmaktadır. Kalkınma sürecinin hızlandırılması açısından dış finansman ihtiyacı yüksek bir yapıya sahip olan Türkiye ekonomisi için, KDK’ların ve kredi notu (credit rating) belirleme yöntemlerinin iyi analiz edilmesi önem arz etmektedir. Bu çalışmanın amacı, KDK’ların ülkelere verdikleri kredi notlarının sistematiğini inceleyerek tutarlılığını sorgulamak ve kredi notunun belirleyicilerini tespit ederek ülke kredi notunun artırılabilmesi için politika önerileri sunmaktır. Bu kapsamda, tersine mühendislik yöntemiyle yapılan panel veri analizleri sonucunda; kişi başına düşen milli gelirin, yönetişim kalitesinin, cari işlemler dengesinin, büyüme performansının, büyüme beklentilerinin, sanayileşmiş ülke olmanın ve ülke para biriminin rezerv para olarak kullanılmasının ülke notunu artıran faktörler olduğu görülmüştür. Buna karşın, döviz kuru oynaklığı, faiz ödemeleri, borç yükü seviyesi ve geçmişte temerrüt yaşanmış olması ise ülke kredi notunu düşüren etkenler olarak öne çıkmaktadır. Çalışmanın sonuçları KDK’lara karşı yapılan krizleri öngörememe ve ani not değişimleriyle mevcut krizleri daha da derinleştirme eleştirilerini desteklemektedir. Analizler Türkiye’nin ülke kredi notunun, özellikle 2004 yılından itibaren, sürekli olarak göstergelerin ima ettiği değerin altında kaldığını, 2012 yılındaki kredi notunun ise BBB (Baa2) düzeyinde olması gerektiğini göstermektedir. Analiz sonuçlarından elde edilen ülke kredi notunun belirleyicileri ve KDK’ların Türkiye ekonomisine yönelttiği eleştiriler göz önüne alındığında, yüksek cari işlemler açığı ve düşük yurtiçi tasarruf oranı kredi notunun artmasının önündeki en belirgin problemler olarak öne çıkmaktadır. Söz konusu problemlerin çözümü için Onuncu Kalkınma Planında yer alan politikaların ve öncelikli dönüşüm programlarının etkin bir şekilde hayata geçirilmesi büyük önem arz etmektedir. Bu kapsamda, Onuncu Kalkınma Planı politikalarının hayata geçirilmesi ve OVP (2015-2017) hedeflerine ulaşılması ve sonraki yıllarda da bu gelişmelerin devam ettirilmesiyle ülkemizin kredi notunun 2020 yılında “BBB+” düzeyine çıkacağı tahmin edilmektedir. Ayrıca, yönetim göstergelerinde yaşanacak daha hızlı bir iyileşme sonucunda ise kredi notunun 2020 yılında “A-” düzeyine kadar çıkabileceği öngörülmektedir.

Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises?

SSRN Electronic Journal, 2000

Credit rating changes for long-term foreign currency debt may act as a wake-up call with upgrades and downgrades in one country affecting other financial markets within and across national borders. Such a potential (contagious) rating effect is likely to be stronger in emerging market economies, where institutional investors' problems of asymmetric information are more present. This empirical study complements earlier research by explicitly examining cross-security and cross-country contagious rating effects of credit rating agencies' sovereign risk assessments. In particular, the specific impact of sovereign rating changes during the financial turmoil in emerging markets in the latter half of the 1990s has been examined. The results indicate that sovereign rating changes in a ground-zero country have a (statistically) significant impact on the financial markets of other emerging market economies although the spillover effects tend to be regional. JEL Classification: E44, E47, G15

Rating Models Mistakes and Implications for the Basel Committee on Banking Regulation

Rating agencies have been key players in various financial crisis not just the current one but also in previous episodes such as the Asian crisis. In this paper we address the following issues: (i) the methodological errors in the agencies rating systems regarding corporate and sovereign debt (ii) Basel Committee banking regulation proposal regarding the agencies' role in establishing the minimum capital requirements. We have analyzed the relationship between ratings and default frequencies for corporate and sovereign bonds in the pre-crisis period and we have identified inconsistencies in the rating system. Another interesting result is that it is not possible to discriminate between issuers with such a large number of rating scales. We concluded that the actual credit risk regulation gravitate around models based on rating systems that cannot be estimated or validated with the guarantees of rigour and allows regulatory arbitrage by banks

Do credit rating agencies add to the dynamics of emerging market crises?

Journal of Financial Stability, 2005

The experience in the period during and after the Asian crisis of 1997-98 has provoked an extensive debate about the credit rating agencies' evaluation of sovereign risk in emerging markets lending. This study analyzes the role of credit rating agencies in international financial markets, particularly whether sovereign credit ratings have an impact on the financial stability in emerging market economies. The event study and panel regression results indicate that credit rating agencies have substantial influence on the size and volatility of emerging markets lending. The empirical results are significantly stronger in the case of government's downgrades and negative imminent sovereign credit rating actions such as credit watches and rating outlooks than positive adjustments by the credit rating agencies while by the market participants' anticipated sovereign credit rating changes have a smaller impact on financial markets in emerging economies.

The Credit Rating Agencies — Are They Reliable? A Study of Sovereign Ratings (original) (raw)

Related papers