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

Authors

  • Paula Hill,

    1. The first author is from the University of Bristol, UK. The second author is from the University of Queensland, Australia. They thank Rob Brooks, Louis Ederington, David Hillier and staff at the Finance Department of the University of Melbourne for their helpful comments and suggestions.
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  • Robert Faff

    Corresponding author
    1. The first author is from the University of Bristol, UK. The second author is from the University of Queensland, Australia. They thank Rob Brooks, Louis Ederington, David Hillier and staff at the Finance Department of the University of Melbourne for their helpful comments and suggestions.
      Address for correspondence: Robert Faff, Professor of Finance, University of Queensland, 4072 Queensland, Australia.
      e-mail: r.faff@business.uq.edu.au
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Address for correspondence: Robert Faff, Professor of Finance, University of Queensland, 4072 Queensland, Australia.
e-mail: r.faff@business.uq.edu.au

Abstract

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 Moody’s. We find evidence of specialisation, however, among agencies, with Moody’s, 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.

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