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Moody's and S&P Ratings: Are They Equivalent? Conservative Ratings and Split Rated Bond Yields

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  • MILES LIVINGSTON
  • JIE (DIANA) WEI
  • LEI ZHOU
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    Abstract

    We examine the relative impact of Moody's and S&P ratings on bond yields and find that at issuance, yields on split rated bonds with superior Moody's ratings are about 8 basis points lower than yields on split rated bonds with superior S&P ratings. This suggests that investors differentiate between the two ratings and assign more weight to the ratings from Moody's, the more conservative rating agency. Moody's becomes more conservative after 1998 and the impact of a superior Moody's rating becomes stronger. Furthermore, the differential impact of the two ratings is more pronounced for the more opaque Rule 144A issues. Copyright (c) 2010 The Ohio State University.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2010.00341.x
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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 42 (2010)
    Issue (Month): 7 (October)
    Pages: 1267-1293

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    Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:7:p:1267-1293

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Daniel Rösch & Harald Scheule, 2011. "Securitization rating performance and agency incentives," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 287-314 Bank for International Settlements.
    2. Hauck, Achim & Neyer, Ulrike, 2014. "Disagreement between rating agencies and bond opacity: A theoretical perspective," Economics Letters, Elsevier, vol. 123(1), pages 82-85.
    3. Paula Hill & Robert Faff, 2010. "The Market Impact of Relative Agency Activity in the Sovereign Ratings Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9-10), pages 1309-1347, November/.
    4. Bank for International Settlements, 2013. "Sovereign debt: financial market over-reliance on credit rating agencies," BIS Papers chapters, in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 72, pages 78-90 Bank for International Settlements.

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