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Sovereign ratings and their asymmetric response to fundamentals

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  • Broto, Carmen
  • Molina, Luis

Abstract

The evolution of sovereign ratings is strongly asymmetric, as downgrades tend to be deeper and faster than upgrades. In other words, once a country loses its initial status it takes a long time to recover it. Using S&P data, we characterize “rating cycles” in terms of their duration and amplitude. Then, we study whether the reaction of this agency to new domestic economic and financial information is also different during upgrade and downgrade phases. Our results indicate that favorable fundamentals could be helpful in terms of smoothing and slowing down rating downgrades, whereas they do not seem to accelerate rating upgrades.

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  • Broto, Carmen & Molina, Luis, 2016. "Sovereign ratings and their asymmetric response to fundamentals," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 206-224.
    • Handle: RePEc:eee:jeborg:v:130:y:2016:i:c:p:206-224
    DOI: 10.1016/j.jebo.2016.07.017
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    1. L’asymétrique réponse des notations souveraines aux fondamentaux
      by ? in D'un champ l'autre on 2014-12-14 23:57:00

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    More about this item

    Keywords

    Sovereign credit ratings; Rating cycle; Emerging countries; Panel data model;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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