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Methodological issues of credit rating – Are sovereign credit rating actions reconstructible?

Author

Listed:
  • Imre Ligeti
  • Zsolt Szõrfi

    () (Magyar Nemzeti Bank)

Abstract

Credit rating agencies formulate publicly available opinions on the capacity and willingness of debtors to repay debts. By doing so, they reduce the information asymmetry between creditors and borrowers. Owing to regulatory efforts commenced in recent years, credit rating processes have become increasingly more transparent as credit rating agencies publish their methodology and make available the values calculated for the most important key variables. This study is intended to examine the extent to which the indicative rating range resulting from the methodology at the current level of transparency explains the empirically observed credit rating of sovereigns. The authors calculated a rating range of three notches and found that in the case of S&P, a higher ratio of observed credit ratings fell within this range and allowed for the reconstruction of individual steps, while Moody’s and Fitch’s currently available methodologies proved to be less suited for such a reconstruction.

Suggested Citation

  • Imre Ligeti & Zsolt Szõrfi, 2016. "Methodological issues of credit rating – Are sovereign credit rating actions reconstructible?," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 15(1), pages 7-32.
  • Handle: RePEc:mnb:finrev:v:15:y:2016:i:1:p:7-32
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    File URL: http://english.hitelintezetiszemle.hu/letoltes/1-ligeti-szorfi-1.pdf
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    References listed on IDEAS

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    1. John Kiff, 2013. "Sovereign credit ratings: help or hindrance?," BIS Papers chapters, in: Bank for International Settlements (ed.),Sovereign risk: a world without risk-free assets?, volume 72, pages 34-38, Bank for International Settlements.
    2. Mattarocci, Gianluca, 2013. "The Independence of Credit Rating Agencies," Elsevier Monographs, Elsevier, edition 1, number 9780124045699.
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    Cited by:

    1. Burak PIRGAIP, 2017. "Derecelendirme Notu Degisikliklerinin Borsa Istanbul (BIST) Pay Piyasasi’na Etkileri," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 17(3), pages 351-368.

    More about this item

    Keywords

    credit rating agency; credit rating; case study;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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