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An examination of rating agencies' actions around the investment-grade boundary

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  • Richard Johnson
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    Abstract

    Data on credit ratings by the agencies with the legal status of Nationally-Recognized Statistical Rating Organizations (NRSROs) show some tendency for one-day downgrades that start from the lowest investment grade, BBB-, to travel more grades than those from neighboring grades. This would be consistent with the lower threshold of the NRSROs' grade BBB- being at a substantial default probability, but also could occur simply because downgrades to junk severely impair some firms' operations. A comparison of data from a non-NRSRO agency and an NRSRO shows that the latter's regrades from BBB- moved in the direction of the non-NRSRO's earlier ratings. This suggests the non-NRSRO defines its grade BBB- more narrowly than the NRSRO.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 03-01.

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    Date of creation: 2003
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    Handle: RePEc:fip:fedkrw:rwp03-01

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    Cited by:
    1. Gonzalez, F. & Haas, F. & Johannes, R. & Persson, M. & Toledo, L. & Violi, R. & Zins, C. & Wieland, M., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 53-76, June.
    2. Ponce, Jorge, 2012. "The quality of credit ratings: A two-sided market perspective," Economic Systems, Elsevier, vol. 36(2), pages 294-306.

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