Download This PaperRating Through-the-Cycle: Implications for Rating Stability and Accuracy. Empirical evidence
18 Pages Posted: 2 Mar 2018 Last revised: 9 Jan 2024
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Rating Through-the-Cycle: Implications for Rating Stability and Accuracy. Empirical evidence
Rating Through-the-Cycle: What Does the Concept Imply for Rating Stability and Accuracy?
Date Written: January 8, 2024
Abstract
Through-the-cycle (TTC) ratings attempt to discriminate between high and low risk borrowers by forecasting large adverse changes in credit quality under conditions of moderate stress. While the TTC methodology increases rating stability relative to market ratings, it is an open empirical question whether stable ratings come at the cost of lower accuracy. Using a novel and large dataset of banks' internal TTC ratings provided by the Global Credit Data Consortium, we fail to find evidence of an accuracy-stability tradeoff. These findings are robust over time and across asset classes.
Keywords: credit ratings, through-the-cycle, rating accuracy, rating stability
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