The information value of credit rating outlooks.
Item
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Title
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The information value of credit rating outlooks.
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Identifier
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AAI3213264
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identifier
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3213264
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Creator
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Hamilton, David T.
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Contributor
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Adviser: Salih Neftci
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Date
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2006
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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Agency credit ratings are used by multiple constituencies, each with their own (possibly conflicting) goals. Financial market regulators desire accurate, forward-look estimates of credit risk. While investors also desire accuracy, they also value rating stability: rating changes impose portfolio adjustment costs on investors bound by ratings-based portfolio governance rules. Rating outlooks and reviews help mitigate the potential conflict between the stability and accuracy objectives by providing indications of the likely direction and timing of future credit rating changes. Using a historical data set of Moody's ratings and rating outlooks, this dissertation seeks to answer four, heretofore unanswered questions about rating outlooks. First, this dissertation quantifies how different rating transition and default rates are when conditioned on rating history and outlook/Watchlist status. Second, the question of whether rating transition and default risk depends on rating history (serial dependence) after conditioning on outlooks and reviews is addressed. Third, we investigate how much the predictive power of Moody's credit ratings is increased by recognizing the information contained in rating outlooks and reviews. Finally, we analyze the extent to which outlook assignments affect investors' views on credit risk as reflected in credit default swap (CDS) market prices.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
