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Why they keep missing: An empirical investigation of sovereign bond ratings and their timing *
Author(s) -
ElShagi Makram,
von Schweinitz Gregor
Publication year - 2022
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12301
Subject(s) - bond credit rating , credit rating , economics , function (biology) , sovereignty , econometrics , actuarial science , credit risk , political science , law , politics , evolutionary biology , credit reference , biology
Two contradictory strands of the rating literature criticize that rating agencies merely follow the market on the one hand, and emphasizing that rating changes affect capital movements on the other hand. Both focus on explaining rating levels rather than the timing of rating announcements. Contrarily, we explicitly differentiate between a decision to assess a country and the actual rating decision. We show that this differentiation significantly improves the estimation of the rating function. The three major rating agencies treat economic fundamentals similarly, while differing in their response to other factors such as strategic considerations. This reconciles the conflicting literature.