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Are credit ratings and Cds spreads aligned? The implications for regulation and loan pricing

Author

Listed:
  • Alberto Burchi

    (Università di Perugia)

  • Danilo Drago

    (Università della Calabria)

Abstract

Ratings measure the counterparty risk for an issuer or an issue while Cds are a market evaluation of the same risk exposure. The market evaluation could be not aligned with the rating agencies’ judgment and the difference could be relevant. The article presents an empirical analysis on a sample of US firms in order to demonstrate the existence of a significant difference between the ratings and the Cds that could affect the lending policy of a bank.

Suggested Citation

  • Alberto Burchi & Danilo Drago, 2012. "Are credit ratings and Cds spreads aligned? The implications for regulation and loan pricing," BANCARIA, Bancaria Editrice, vol. 10, pages 42-65, October.
    • Handle: RePEc:ban:bancar:v:10:y:2012:m:october:p:42-65
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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