The Market Impact of Relative Agency Activity in the Sovereign Ratings Market

39 Pages Posted: 1 Jan 2011

See all articles by Paula Hill

Paula Hill

affiliation not provided to SSRN

Robert W. Faff

University of Queensland

Abstract

Using a sample of 101 countries, over the period 1990 to 2006, we assess the relative credit-rating activity of the major agencies at the sovereign level. Informed by this preliminary analysis, we then examine the market impact of rating actions (ratings changes, watch procedures and outlooks), allowing for various interactions across raters and rating events. Additionally, we carry out a separate analysis of crisis periods. We find that Standard and Poor's tend to be more active, provide more timely rating assessments and offer more new information than either Fitch or Moodys. We find evidence of specialisation, however, among agencies, with Moodys, for example, being the leading agency among IMF advanced economies. In line with our rating activity analysis, we find some evidence of stronger reaction to changes in Standard and Poor's rating assessments than in those of the other agencies. We also find evidence that credit-outlook and credit-watch events are more timely and more informative than downgrades and upgrades, and that, as anticipated, reactions are stronger during crisis periods, but that events remain informative outside crisis periods.

Keywords: credit rating, rating change, credit watch, information, sovereign

Suggested Citation

Hill, Paula and Faff, Robert W., The Market Impact of Relative Agency Activity in the Sovereign Ratings Market. Journal of Business Finance & Accounting, Vol. 37, No. 9-10, pp. 1309-1347, 2010. Available at SSRN: https://ssrn.com/abstract=1733383 or http://dx.doi.org/10.1111/j.1468-5957.2010.02220.x

Paula Hill

affiliation not provided to SSRN

Robert W. Faff (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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