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Rating Migrations: The Effect of History and Time
Author(s) -
Dang Huong,
Partington Graham
Publication year - 2014
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/abac.12027
Subject(s) - credit rating , debt , bond credit rating , economics , rating scale , econometrics , actuarial science , statistics , mathematics , macroeconomics , credit risk , credit reference
We examine the effect of rating history and the passage of time on the rating migration hazard for corporate debt issuers. Controlling for industry effects and the evolution of business and political cycles, the results consistently show that the next change of rating depends more strongly on rating history than it does on the current rating. However, there are significant interactions between the main effects of rating history and the duration of the current rating. The result is substantial decay in the effects of rating history the longer a rating remains unchanged. This decay effect is stronger for downgrades and for ratings in the speculative category.