Ratings assignments: lessons from international banks

Caporale, Guglielmo Maria, Matousek, Roman and Stewart, Chris (2012) Ratings assignments: lessons from international banks. Journal of International Money and Finance, 31(6), pp. 1593-1606. ISSN (print) 0261-5606

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This paper estimates ordered logit models for bank ratings which include a country index to capture country-specific variation. The empirical findings support the hypothesis that the individual international bank ratings assigned by Fitch Ratings are underpinned by fundamental quantitative financial analyses. Also, there is strong evidence of a country effect. Our model is shown to provide accurate predictions of bank ratings for the period prior to the 2007–2008 banking crisis based upon publicly available information. However, our results also suggest that quantitative models are unlikely to predict ratings with complete accuracy. Furthermore, we find that both quantitative models and rating agencies are likely to produce highly inaccurate predictions of ratings during periods of financial instability.

Item Type: Article
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences (until 2017) > School of Economics, History and Politics (from November 2012)
Depositing User: Christopher Stewart
Date Deposited: 04 Apr 2013 10:49
Last Modified: 04 Apr 2013 10:49
DOI: https://doi.org/10.1016/j.jimonfin.2012.02.018
URI: http://eprints.kingston.ac.uk/id/eprint/25279

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