Stability of credit ratings: The rating agencies' sensitivity to the economic cycle
Autor(a) principal: | |
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Data de Publicação: | 2022 |
Tipo de documento: | Dissertação |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10071/26784 |
Resumo: | “Credit Ratings foster the development and smooth functioning of capital markets by providing transparent information and insight to market participants.” S&P Global Ratings information has been a key factor to financial markets over the course of the years, as Credit Rating Agencies have the important role of reducing information asymmetries between firms and investors. Because of the oligopolistic nature of this sector, coupled with a number of questionable positions taken by these agencies, they have been subjected to a high level of scrutiny and criticism. In this dissertation we deepen the investigation regarding the methodology these agencies apply in their business model. As markets crave for stability and fair assessments from CRAs, they claim to have a through-the-cycle approach that focuses on the long-term and individual performance components of each issue they release. Through our research, in which we applied a measure that encapsulates the information in a ratings transition matrix into a single number, RatVol, we find that CRAs are sensitive to business cycle variations. Unfavorable economic conditions yield a large number of downgrades, and recent observations show that agencies tend to be more prone to overreact to the business cycle variations. Their claims of a through-the-cycle methodology seem to be arguable. |
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Stability of credit ratings: The rating agencies' sensitivity to the economic cycleCredit rating agenciesRating changesVolatility of ratingsStabilityAgências de ratingMudanças de ratingVolatilidade dos ratingsEstabilidade“Credit Ratings foster the development and smooth functioning of capital markets by providing transparent information and insight to market participants.” S&P Global Ratings information has been a key factor to financial markets over the course of the years, as Credit Rating Agencies have the important role of reducing information asymmetries between firms and investors. Because of the oligopolistic nature of this sector, coupled with a number of questionable positions taken by these agencies, they have been subjected to a high level of scrutiny and criticism. In this dissertation we deepen the investigation regarding the methodology these agencies apply in their business model. As markets crave for stability and fair assessments from CRAs, they claim to have a through-the-cycle approach that focuses on the long-term and individual performance components of each issue they release. Through our research, in which we applied a measure that encapsulates the information in a ratings transition matrix into a single number, RatVol, we find that CRAs are sensitive to business cycle variations. Unfavorable economic conditions yield a large number of downgrades, and recent observations show that agencies tend to be more prone to overreact to the business cycle variations. Their claims of a through-the-cycle methodology seem to be arguable.“Credit Ratings foster the development and smooth functioning of capital markets by providing transparent information and insight to market participants.” S&P Global A informação relativa aos ratings corporativos tem sido um fator-chave nos mercados financeiros ao longo da história, já que as Agências de Rating desempenham o importante papel de reduzir assimetrias de informação entre empresas e investidores. Dado o funcionamento oligopolístico deste setor, aliado ao número elevado de posições questionáveis tomadas por estas agências, as mesmas têm sido sujeitas a um grande nível de escrutínio e críticas. Nesta dissertação aprofundamos o já extenso trabalho de investigação que se foca na metodologia que estas agências aplicam no seu modelo de negócio. Sendo que os mercados valorizam estabilidade e avaliações justas por parte das agências, as mesmas afirmam ter uma abordagem through-the-cycle, que foca na componente de performance individual e de longo prazo de cada rating providenciado. Através da nossa pesquisa, na qual aplicámos uma medida que captura a informação dos ratings presentes numa matriz transitória e o exprime apenas num número, apelidada de RatVol, concluímos que, na realidade, as agências parecem ser sensíveis às variações do ciclo económico. Os nossos resultados sugerem que condições económicas desfavoráveis resultam numa maior intensidade de downgrades, sendo que recentes observações indicam que as agências tendem a ser mais suscetíveis a reagir de forma exagerada a variações do ciclo económico. As alegações que as agências fazem de seguirem uma metodologia de certa forma insensível ao ciclo económico parecem, por isso, ser questionáveis.2023-12-14T00:00:00Z2022-12-14T00:00:00Z2022-12-142022-10info:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/masterThesisapplication/pdfhttp://hdl.handle.net/10071/26784TID:203124693engPatrício, João Manuel dos Santosinfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-12-17T01:17:25Zoai:repositorio.iscte-iul.pt:10071/26784Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T22:32:45.121441Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Stability of credit ratings: The rating agencies' sensitivity to the economic cycle |
title |
Stability of credit ratings: The rating agencies' sensitivity to the economic cycle |
spellingShingle |
Stability of credit ratings: The rating agencies' sensitivity to the economic cycle Patrício, João Manuel dos Santos Credit rating agencies Rating changes Volatility of ratings Stability Agências de rating Mudanças de rating Volatilidade dos ratings Estabilidade |
title_short |
Stability of credit ratings: The rating agencies' sensitivity to the economic cycle |
title_full |
Stability of credit ratings: The rating agencies' sensitivity to the economic cycle |
title_fullStr |
Stability of credit ratings: The rating agencies' sensitivity to the economic cycle |
title_full_unstemmed |
Stability of credit ratings: The rating agencies' sensitivity to the economic cycle |
title_sort |
Stability of credit ratings: The rating agencies' sensitivity to the economic cycle |
author |
Patrício, João Manuel dos Santos |
author_facet |
Patrício, João Manuel dos Santos |
author_role |
author |
dc.contributor.author.fl_str_mv |
Patrício, João Manuel dos Santos |
dc.subject.por.fl_str_mv |
Credit rating agencies Rating changes Volatility of ratings Stability Agências de rating Mudanças de rating Volatilidade dos ratings Estabilidade |
topic |
Credit rating agencies Rating changes Volatility of ratings Stability Agências de rating Mudanças de rating Volatilidade dos ratings Estabilidade |
description |
“Credit Ratings foster the development and smooth functioning of capital markets by providing transparent information and insight to market participants.” S&P Global Ratings information has been a key factor to financial markets over the course of the years, as Credit Rating Agencies have the important role of reducing information asymmetries between firms and investors. Because of the oligopolistic nature of this sector, coupled with a number of questionable positions taken by these agencies, they have been subjected to a high level of scrutiny and criticism. In this dissertation we deepen the investigation regarding the methodology these agencies apply in their business model. As markets crave for stability and fair assessments from CRAs, they claim to have a through-the-cycle approach that focuses on the long-term and individual performance components of each issue they release. Through our research, in which we applied a measure that encapsulates the information in a ratings transition matrix into a single number, RatVol, we find that CRAs are sensitive to business cycle variations. Unfavorable economic conditions yield a large number of downgrades, and recent observations show that agencies tend to be more prone to overreact to the business cycle variations. Their claims of a through-the-cycle methodology seem to be arguable. |
publishDate |
2022 |
dc.date.none.fl_str_mv |
2022-12-14T00:00:00Z 2022-12-14 2022-10 2023-12-14T00:00:00Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/masterThesis |
format |
masterThesis |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10071/26784 TID:203124693 |
url |
http://hdl.handle.net/10071/26784 |
identifier_str_mv |
TID:203124693 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
instname_str |
Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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