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- Title
Timeliness of Spread Implied Ratings.
- Authors
Jianming Kou; Simone Varotto
- Abstract
Rating agencies are known to be prudent in their approach to rating revisions, which results in delayed rating adjustments. For a large set of eurobonds we derive credit spread implied ratings and compare them with agency ratings. Our results indicate that spread implied ratings often anticipate the future movement of agency ratings and hence can help track credit risk in a more timely manner. This finding has important implications for risk managers in banks who, under the new Basel 2 regulations, have to rely more on credit ratings for capital allocation purposes, and for portfolio managers who face rating-related investment restrictions.
- Subjects
BANKING industry; CREDIT ratings; RISK managers; CREDIT risk; FINANCIAL services industry; CAPITAL market; RISK assessment; CREDIT management; FINANCIAL institutions
- Publication
European Financial Management, 2008, Vol 14, Issue 3, p503
- ISSN
1354-7798
- Publication type
Article
- DOI
10.1111/j.1468-036X.2007.00362.x