Open AccessEvidence Of Nonstationarity In the Bond Rating Process For Newly Issued Bonds: A Note
Author(s) -
Mai E. Iskandar
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v8i1.6192
Subject(s) - bond credit rating , bond , recession , economics , actuarial science , econometrics , credit rating , agency (philosophy) , investment (military) , business , finance , law , political science , macroeconomics , sociology , credit risk , credit reference , social science , politics
This study documents nonstationarity of the bond rating process. The empirical evidence suggests that not only the parameter estimates exhibit nonstationarity but also the bond rating process itself. The source of nonstationarity is found to be externally caused and non agency-specific. Further examination leads us to stipulate that rating agencies apply stricter standards to lower grade issues than to higher grade one when the economy is in a recession. The results have implications for bond investment strategies as well as for the utilization of bond rating prediction models.