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The Causes and Extent of Split Sovereign Credit Ratings in Emerging Markets

Listed author(s):
  • Rasha Alsakka
  • Owain ap Gwilym

Sovereign credit rating actions have attracted considerable attention recently. This study employs a rich and unique data set of ratings from six international agencies to investigate the causes of split sovereign ratings in emerging countries. Three reasons are identified in explaining the relatively high frequency of disagreement across agencies on emerging sovereign ratings. First, rating agencies use different economic factors and different weights on those factors. Second, rating agencies disagree to a greater extent about more opaque issuers. Third, for smaller rating agencies, issuers in their "home region" tend to be more favored. The findings should be of interest to a wide range of participants in global credit markets.

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File URL: http://hdl.handle.net/10.2753/REE1540-496X480101
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Article provided by Taylor & Francis Journals in its journal Emerging Markets Finance and Trade.

Volume (Year): 48 (2012)
Issue (Month): 1 (January)
Pages: 4-24

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Handle: RePEc:taf:emfitr:v:48:y:2012:i:1:p:4-24
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  1. Roberto Perrelli & Christian B. Mulder, 2001. "Foreign Currency Credit Ratings for Emerging Market Economies," IMF Working Papers 01/191, International Monetary Fund.
  2. Hyytinen, Ari & Pajarinen, Mika, 2008. "Opacity of young businesses: Evidence from rating disagreements," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1234-1241, July.
  3. Bissoondoyal-Bheenick, Emawtee, 2005. "An analysis of the determinants of sovereign ratings," Global Finance Journal, Elsevier, vol. 15(3), pages 251-280, February.
  4. Shin, Yoon S. & Moore, William T., 2003. "Explaining credit rating differences between Japanese and U.S. agencies," Review of Financial Economics, Elsevier, vol. 12(4), pages 327-344.
  5. Livingston, Miles & Naranjo, Andy & Zhou, Lei, 2008. "Split bond ratings and rating migration," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1613-1624, August.
  6. Richard Cantor & Frank Packer, 1995. "Sovereign credit ratings," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 1(Jun).
  7. Alsakka, Rasha & ap Gwilym, Owain, 2010. "Leads and lags in sovereign credit ratings," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2614-2626, November.
  8. Christian B. Mulder & Brieuc Monfort, 2000. "Using Credit Ratings for Capital Requirementson Lending to Emerging Market Economies; Possible Impact of a New Basel Accord," IMF Working Papers 00/69, International Monetary Fund.
  9. Miles Livingston & Andy Naranjo & Lei Zhou, 2007. "Asset Opaqueness and Split Bond Ratings," Financial Management, Financial Management Association International, vol. 36(3), pages 49-62, September.
  10. Jewell, Jeff & Livingston, Miles, 1998. "Split Ratings, Bond Yields, and Underwriter Spreads," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(2), pages 185-204, Summer.
  11. Rasha Alsakka & Owain ap Gwilym, 2010. "Sovereign Ratings and Migrations: Emerging Markets," Working Papers 10009, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  12. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
  13. Cantor, Richard & Packer, Frank, 1997. "Differences of opinion and selection bias in the credit rating industry," Journal of Banking & Finance, Elsevier, vol. 21(10), pages 1395-1417, October.
  14. Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September.
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