Directional Mobility of Ratings

Bhaumik, Sumon K.; Landon-Lane, John

doi:10.2139/ssrn.1088464

Directional Mobility of Ratings

William Davidson Institute Working Paper No. 900

35 Pages Posted: 31 Jan 2008

See all articles by Sumon K. Bhaumik

Sumon K. Bhaumik

Aston University - Aston Business School; Institute for the Study of Labor (IZA); University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics

Date Written: November 2007

Abstract

In this paper we describe a method to decompose a well-known measure of debt ratings mobility into it's directional components. We show, using sovereign debt ratings as an example, that this directional decomposition allows us to better understand the underlying characteristics of debt ratings migration and, for the case of the data set used, that the standard Markov chain model is not homogeneous in either the time or cross-sectional dimensions. We find that the directional decomposition also allows us to sign the change in quality of debt over time and across sub-groups of the population.

Keywords: Ratings migration, Mobility, Sovereign debt

JEL Classification: F34 G15 H63

Suggested Citation: Suggested Citation

Bhaumik, Sumon K. and Landon-Lane, John, Directional Mobility of Ratings (November 2007). William Davidson Institute Working Paper No. 900, Available at SSRN: https://ssrn.com/abstract=1088464 or http://dx.doi.org/10.2139/ssrn.1088464