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How rating agencies achieve rating stability

Article Abstract:

Some investors believe that rating agencies are relatively slow in adjusting their ratings. This is largely due to the through- the- cycle methodology that agencies use. The stability of agency ratings is significantly enhanced by a prudent agency-migration policy and long-term default horizon. A default- prediction model with the best default- prediction performance in recent history and estimated with the appropriate investorEs time horizon gives the best estimate of the true rating matrix.

Author: Altman, Edward I., Rijken, Herbert A.
Publisher: Elsevier B.V.
Publication Name: Journal of Banking & Finance
Subject: Business
ISSN: 0378-4266
Year: 2004
Management dynamics, Management, Company business management, Credit bureaus

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Confidence sets for continuous--time rating transition probabilities

Article Abstract:

The importance of Markov assumption in the method of estimation one-year transition probabilities is investigated using continuous- time Markov Technique. Recent downgraded firms tend to have higher downgrade intensity and show that non-zero default probability estimates are increased further. The new minimum level of 0.03% put forward by the Basel Committee is conservative when compared to the data for the top three investment grade categories.

Author: Christensen, Jens H.E., Hansen, Ernst, Lando, David
Publisher: Elsevier B.V.
Publication Name: Journal of Banking & Finance
Subject: Business
ISSN: 0378-4266
Year: 2004
Usage, Markov processes

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Informational efficiency of credit default swap and stock markets: the impact of credit rating announcements

Article Abstract:

The response of the stock and credit default swap (CDS) markets to rating announcements made by three major rating agencies during 2000-2002 is analyzed, particularly whether and how strong is the response in terms of abnormal returns and adjusted CDS spread changes. The results show that markets anticipate not only rating downgrades but also reviews for downgrades. Standard & Poor and MoodyEs ratings provide the largest impact on the markets.

Author: Norden, Lars, Weber, Martin
Publisher: Elsevier B.V.
Publication Name: Journal of Banking & Finance
Subject: Business
ISSN: 0378-4266
Year: 2004
Services information, Services, Capital market, Capital markets, Rating agencies (Securities)

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Subjects list: Research, Credit ratings, United States
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