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 02615606

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Abstract

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
Keywords: International banks; Ratings; Ordered logit models; Country index
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HG Finance > HG1501 Banking > HG1641 Bank loans. Bank credit. Commercial loans
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Depositing User: Roman Matousek
Date Deposited: 18 Sep 2012 15:48
Last Modified: 18 Sep 2012 15:48
URI: http://sro.sussex.ac.uk/id/eprint/40747

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