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Market dynamics associated with credit ratings - a literature review

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Author Info
Fernando Gonzalez () (European Central Bank, Kaiserstrasse 29, 60311, Frankfurt am Main, Germany.)
François Haas (Banque de France, 39, rue Croix-des-Petits-Champs, 75049 Paris Cedex 01, France.)
Ronald Johannes (Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom.)
Mattias Persson (Sveriges Riksbank, Brunkebergstorg 11, 103 37 Stockholm, Sweden.)
Liliana Toledo (Banco de España, Alcalá 50, 28014 Madrid, Spain.)
Roberto Violi (Banca d’Italia, Via Nazionale 91, 00184 Rome, Italy.)
Martin Wieland () (Deutsche Bundesbank, Wilhelm-Epstein-Str. 14, 60431 Frankfurt am Main, Germany.)
Carmen Zins () (Deutsche Bundesbank, Wilhelm-Epstein-Str. 14, 60431 Frankfurt am Main, Germany.)

Additional information is available for the following registered author(s):

Abstract

This paper investigates the potential impact of the growing influence of the opinions of credit rating agencies (CRAs) on market dynamics. This impact can be seen as a consequence of the information content of the ratings themselves or indirectly as a consequence of the "hardwiring" of ratings into regulatory rules, management mandates, bond covenants, etc. Rating agencies who strive to provide credit assessments that remain broadly stable through the course of the business cycle have been themselves affected as the growing reliance on rating mean that they are increasingly expected to satisfy a widening range of constituencies with different and sometimes conflicting interests. They have responded to this challenge largely by adding more products to their traditional product palette but also through modifications in the rating process. It is however too early to say whether these changes mean a fundamental shift in their approach to credit risk measurement.

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Publisher Info
Paper provided by European Central Bank in its series Occasional Paper Series with number 16.

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Length: 40 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:ecb:ecbops:20040016

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Related research
Keywords: credit rating agencies; ratings; market dynamics; rating triggers; rating methodologies.;

Other versions of this item:

Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
G29 - Financial Economics - - Financial Institutions and Services - - - Other

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Doron Kliger & Oded Sarig, 2000. "The Information Value of Bond Ratings," Journal of Finance, American Finance Association, vol. 55(6), pages 2879-2902, December. [Downloadable!] (restricted)
    Other versions:
  2. Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, 02. [Downloadable!] (restricted)
  3. Caton, Gary L & Goh, Jeremy, 2003. " Are All Rivals Affected Equally by Bond Rating Downgrades?," Review of Quantitative Finance and Accounting, Springer, vol. 20(1), pages 49-62, January. [Downloadable!] (restricted)
  4. Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. " The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-52, June. [Downloadable!] (restricted)
  5. Til Schuermann & Yusuf Jafry, 2003. "Measurement and Estimation of Credit Migration Matrices," Center for Financial Institutions Working Papers 03-08, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  6. Lando, David & Skodeberg, Torben M., 2002. "Analyzing rating transitions and rating drift with continuous observations," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 423-444, March. [Downloadable!] (restricted)
  7. Holthausen, Robert W. & Leftwich, Richard W., 1986. "The effect of bond rating changes on common stock prices," Journal of Financial Economics, Elsevier, vol. 17(1), pages 57-89, September. [Downloadable!] (restricted)
  8. Dimitrios Tsomocos & Eva Catarineu-Rabell & Patricia Jackson, 2003. "Procyclicality and the new Basel Accord–banks’ choice of loan rating system," FMG Discussion Papers dp464, Financial Markets Group. [Downloadable!] (restricted)
    Other versions:
  9. ., ., 1997. "," Journal of Accounting and Economics, Elsevier, vol. 24(2), pages 127-127, December. [Downloadable!] (restricted)
  10. Nickell, Pamela & Perraudin, William & Varotto, Simone, 2000. "Stability of rating transitions," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 203-227, January. [Downloadable!] (restricted)
    Other versions:
  11. Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank. [Downloadable!]
  12. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May. [Downloadable!] (restricted)
    Other versions:
  13. Griffin, Paul A & Sanvicente, Antonio Z, 1982. " Common Stock Returns and Rating Changes: A Methodological Comparison," Journal of Finance, American Finance Association, vol. 37(1), pages 103-19, March. [Downloadable!] (restricted)
  14. Ilia D. Dichev, 2001. "The Long-Run Stock Returns Following Bond Ratings Changes," Journal of Finance, American Finance Association, vol. 56(1), pages 173-203, 02. [Downloadable!] (restricted)
  15. Pierre Collin-Dufresne, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, vol. 56(6), pages 2177-2207, December. [Downloadable!] (restricted)
  16. Richard Johnson, 2003. "An examination of rating agencies' actions around the investment-grade boundary," Research Working Paper RWP 03-01, Federal Reserve Bank of Kansas City.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Martin Sullivan, 2009. "Credit Ratings and UK Defined Pension Fund Portfolio Values," Discussion Papers 0909, University of the West of England, Department of Economics. [Downloadable!]
  2. Mattarocci, Gianluca, 2005. "Il rapporto tra impresa e agenzia di rating: la soluzione del multi-rating
    [The relevance of multi-rating in the world market]    ," MPRA Paper 4295, University Library of Munich, Germany, revised Mar 2005. [Downloadable!]
  3. Antonio Di Cesare, 2006. "Do market-based indicators anticipate rating agencies? Evidence for international banks," Temi di discussione (Economic working papers) 593, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  4. Claudio Borio & Haibin Zhu, 2008. "Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?," BIS Working Papers 268, Bank for International Settlements. [Downloadable!]
  5. Angela Maddaloni & Darren Pain, 2004. "Corporate ‘excesses’ and financial market dynamics," Occasional Paper Series 17, European Central Bank. [Downloadable!]
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