Market Implied Ratings
Risk Magazine, July 2003
15 Pages Posted: 13 Aug 2003
Recent high-profile defaults of investment grade bond issuers have demonstrated the weakness of conventional ratings in rapidly changing circumstances. We propose a simple method to derive market-based ratings from spread data, and show that classifying bonds using such ratings provides a more reliable basis for modeling return relationships than does a classification driven by agency ratings.
Keywords: Credit rating, risk, market implied ratings
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