Why they keep missing: An empirical investigation of sovereign bond ratings and their timing. (25th October 2021)

• Record Type: Journal Article
• Authors: El‐Shagi, Makram; von Schweinitz, Gregor
• Is Part Of: Scottish journal of political economy. Volume 69:Number 2(2022)
• Page Start: 186
• Page End: 224
• Publication Date: 2021-10-25
• Subjects: decision timing -- rating agencies -- sovereign risk; Great Britain -- Economic conditions -- 1945-1964 -- Periodicals; Great Britain -- Economic conditions -- 1964-1979 -- Periodicals; Great Britain -- Economic conditions -- 1979-1997 -- Periodicals; 330.9411005
• DOI: 10.1111/sjpe.12301
• Languages: English
• ISSNs: 0036-9292

Abstract

Abstract: Two contradictory strands of the rating literature criticize that rating agencies merely follow the market on the one hand, and emphasizing that rating changes affect capital movements on the other hand. Both focus on explaining rating levels rather than the timing of rating announcements. Contrarily, we explicitly differentiate between a decision to assess a country and the actual rating decision. We show that this differentiation significantly improves the estimation of the rating function. The three major rating agencies treat economic fundamentals similarly, while differing in their response to other factors such as strategic considerations. This reconciles the conflicting literature.