Timeliness of Spread Implied Ratings
University of Reading - ICMA Centre
ICMA Centre - Henley Business School, University of Reading
European Financial Management, Vol. 14, Issue 3, pp. 503-527, June 2008
Rating agencies are known to be prudent in their approach to rating revisions, which results in delayed rating adjustments. For a large set of eurobonds we derive credit spread implied ratings and compare them with agency ratings. Our results indicate that spread implied ratings often anticipate the future movement of agency ratings and hence can help track credit risk in a more timely manner. This finding has important implications for risk managers in banks who, under the new Basel 2 regulations, have to rely more on credit ratings for capital allocation purposes, and for portfolio managers who face rating-related investment restrictions.
Number of Pages in PDF File: 25Accepted Paper Series
Date posted: May 13, 2008
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