Sovereign Credit Rating Mismatches

ISEG Economics Department Working Paper No. WP 02/2017/DE/UECE

39 Pages Posted: 16 Jan 2017

See all articles by Antonio Afonso

Antonio Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics)

André Albuquerque

University of Lisbon - ISEG School of Economics and Management

Date Written: January 13, 2017

Abstract

We study the factors behind split ratings in sovereign credit ratings from different agencies, for the period 1980-2015. We employ random effects ordered and simple probit approaches to assess the explanatory power of different macroeconomic, government and financial variables. Our results show that structural balances and the existence of a default in the last ten years were the least significant variables whereas the level of net debt, budget balances, GDP per capita and the existence of a default in the last five years were found to be the most relevant variables explaining rating mismatches across agencies. For speculative-grade ratings, we also find that a default in the last two or five years decreases the rating difference between S&P and Fitch. For the positive rating difference between S&P and Moody’s for investment-grade ratings, an increase in external debt leads to a smaller rating gap between the two agencies.

Keywords: sovereign ratings; split ratings; panel data; random effects ordered probit

JEL Classification: C23; C25; E44; F34; G15; H63

Suggested Citation

Afonso, Antonio and Albuquerque, André, Sovereign Credit Rating Mismatches (January 13, 2017). ISEG Economics Department Working Paper No. WP 02/2017/DE/UECE . Available at SSRN: https://ssrn.com/abstract=2885400 or http://dx.doi.org/10.2139/ssrn.2885400

Antonio Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://https://www.iseg.ulisboa.pt/aquila/homepage/aafonso

UECE (Research Unit on Complexity and Economics)

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://https://uece.rc.iseg.ulisboa.pt/

André Albuquerque

University of Lisbon - ISEG School of Economics and Management ( email )

R. Miguel Lupi 20
Lisboa, Lisbon 1249-078
Portugal

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