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A Comparative Analysis of Country Ratings and Credit Default Swap Premiums in Determining Risk Premium in BRICS-T Countries

Author

Listed:
  • Kutuk, Tansu

    (Kare Portfolio Management)

  • Okur, Mustafa

    (Marmara University)

Abstract

Sovereign credit ratings have a significant impact on the costs of funds obtained from international markets. In this respect, the reliability and impartiality of credit ratings are very important, especially for developing countries. The aim of this study is to reveal how real the credit ratings of countries and institutions reflect the existing situation, how transparent and reliable the evaluation processes are. In order to investigate the effect of credit ratings; macroeconomic data, CDS premiums and banking-finance indices of BRICS-T countries were evaluated before and after the rating changes and analyzed with the help of tables and graphs. At this point, in order to analyze the impact of credit ratings to the banking sector; the selected public bank’s and country’s ratings were evaluated by analyzing the change in share prices and financial ratios of these banks. It was evidenced that movements in CDS premiums reflect the credit reliability of countries and the banks more realistically than the credit ratings. By extending the scope of the study with BRICS countries we differentiated if from the previous literature. In this regard, also an international dimension was added to the study.

Suggested Citation

  • Kutuk, Tansu & Okur, Mustafa, 2020. "A Comparative Analysis of Country Ratings and Credit Default Swap Premiums in Determining Risk Premium in BRICS-T Countries," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 11(2), pages 413-429, April.
    • Handle: RePEc:ris:buecrj:0480
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    More about this item

    Keywords

    Credit Ratings; BRICS Countries; Credit Default Swaps (CDS);
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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