Fitch, Moody’s, and S&amp;P Sovereign Ratings and EMBI Global Spreads: Lessons from 1993–2007

Gaillard, Norbert

doi:10.1007/978-1-4614-0523-8_9

Cited by 14 publications

(12 citation statements)

References 9 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…For example, a substantial literature uses credit ratings (which proxy for interest rates) as a dependent variable and asks what factors make a country more credit-worthy (for recent surveys, see Hoti andMcAleer 2004 andGaillard 2009). Only a handful of studies consider the political underpinnings of credibility and to date all have employed single-equation estimation techniques.…”

Section: The Democratic Advantagementioning

confidence: 99%

Sovereign Debt and Regime Type: Reconsidering the Democratic Advantage

Beaulieu

Cox

Saiegh

2012

Int Org

129

101

View full text Add to dashboard Cite

The literature exploiting historical data generally supports the democratic advantage thesis, which holds that democracies can sell more bonds on better terms than their authoritarian counterparts. However, studies of more recent—and extensive—data sets find that democracies have received no more favorable bond ratings from credit rating agencies than otherwise similar autocracies; and have been no less prone to default. These findings raise the question: where is the democratic advantage? Our answer is that previous assessments of the democratic advantage have typically (1) ignored the democratic advantage in credit access; (2) failed to account for selection effects; and (3) treated GDP per capita as an exogenous variable, ignoring the many arguments that suggest economic development is endogenous to political institutions. We develop an estimator of how regime type affects credit access and credit ratings analogous to the “reservation wage” model of labor supply and treat GDP per capita as an endogenous variable. Our findings indicate that the democratic advantage in the postwar era has two components: first, better access to credit (most autocracies cannot even enter the international bond markets); and second, better ratings, once propensity to enter the market is controlled and GDP per capita is endogenized.

show abstract

Section: The Democratic Advantagementioning

confidence: 99%

Sovereign Debt and Regime Type: Reconsidering the Democratic Advantage

Beaulieu

Cox

Saiegh

2012

Int Org

129

101

View full text Add to dashboard Cite

show abstract

“…The first panel of Table 7 presents the emerging countries' risk ratings by the S&P for 2008 and the second panel of Table 7 8 . The overall stability of ratings is confirmed by various works (Gaillard (2007), Sy (2001)) investigating the correlation between the agencies' ratings and their agreement/disagreements with the market's view. It is stressed that the ratings from S&P, Fitch -and even more Moody'sremain unchanged after excessively high or low spreads, in many cases, and the relationship between rating and market spreads is weaker in times of market turbulence (see Ferri et al (1999), who showed that S&P and Moody's failed to predict the Asian crisis and even exacerbated it because of their alleged procyclical ratings).…”

Section: Analysis With Optimal Risk Indicesmentioning

confidence: 69%

A new country risk index for emerging markets: A stochastic dominance approach

Agliardi

Pinar

et al. 2012

Journal of Empirical Finance

View full text Add to dashboard Cite

An optimal weighting scheme is proposed to construct economic, political and financial risk indices in emerging markets using an approach that relies on consistent tests for stochastic dominance efficiency. These tests are considered for a given risk index with respect to all possible indices constructed from a set of individual risk factors. The test statistics and the estimators are computed using mixed integer programming methods. We derive an economic, political and financial risk ranking of emerging countries. Finally, an overall risk index is constructed. One main result is that the financial risk is the leading contributor to sovereign risk in emerging markets followed by the economic and political risk.JEL Classifications: C12; C13; C14; C15; G01

show abstract

“…Mora (2006) examines Moody's and S&P ratings and concludes that the procyclicality of ratings is not ascertained when considering the post Asian financial crisis years. Analysing sovereign ratings issued by the three rating agencies over 1993-2007, Gaillard (2009 finds that the procyclicality of ratings was much sharper during periods of high risk aversion (1997)(1998) in particular) than periods of low risk aversion (2005)(2006)(2007). In a different way, Cavallo et al (2008) develop a simple Hausman specification test and find that there is some informational content in sovereign ratings that is not completely captured by market spreads.…”

Section: Literature Reviewmentioning

confidence: 99%

Sovereign credit ratings, growth volatility and the global financial crisis

Hassan

2015

Applied Economics

View full text Add to dashboard Cite

a panel of 76 developed and emerging economies and adopting an instrumental variable (IV) estimation technique by correcting for both heterogeneity and endogeneity with the generalized two-stage least squares (G2SLS, EC2SLS) procedure method suggested by Balestra and Varadharajan-Krishnakumar (1987) and Baltagi and Li (1995), this article provides empirical evidence that volatility of per capita GDP growth is reduced when there are positive changes in credit ratings; in other words when sovereign credit risk improves. To deal with potential simultaneity between sovereign credit ratings and output volatility, a system (3SLS) approach is undertaken, and our findings remain robust. By weakening the volatility dampening effects of ratings changes, it is found that the global financial crisis (GFC) has enhanced macroeconomic volatility. One of the channels via which sovereign rating changes affect growth volatility is the financial markets' repricing of sovereign default risk that is reflected in sovereign credit default swap (CDS) spreads and its volatility.

show abstract

Fitch, Moody’s, and S&P Sovereign Ratings and EMBI Global Spreads: Lessons from 1993–2007

Cited by 14 publications

References 9 publications

Sovereign Debt and Regime Type: Reconsidering the Democratic Advantage

Sovereign Debt and Regime Type: Reconsidering the Democratic Advantage

A new country risk index for emerging markets: A stochastic dominance approach

Sovereign credit ratings, growth volatility and the global financial crisis

Contact Info

Product

Resources

About