Working Paper: CEPR ID: DP9512
Authors: Bernhard Bartels; Beatrice Weder di Mauro
Abstract: This paper compares the sovereign rating performance of a large European based rating agency with the Big Three. Using monthly ratings for 56 advanced and emerging economies from June 1999 to October 2012, we explore if Feri behaves differently with respect to rating levels, propensity of down- or upgrade and volatility. In addition, we test for herding behaviour among agencies and "neighbourhood bias" using a gravity model. We find that Feri tends to have a negative "neighbourhood bias", i.e it was tougher on European countries than its anglo-saxon competitors before the crisis and downgraded them more swiftly and aggressively during the crisis. Also, Feri's sovereign ratings tend to be more volatile than the ones of the Big Three though less prone to herding.
Keywords: credit rating agencies; European rating agency; sovereign risk
JEL Codes: E62; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FERI exhibits a negative neighborhood bias (G41) | European countries (O52) |
| FERI's ratings are more volatile (G12) | perceived creditworthiness of European nations (F34) |
| FERI's behavior is influenced by independence from regulatory pressures (G38) | higher volatility in ratings (G24) |
| FERI has a higher propensity for downgrades (G32) | speculative grade (G33) |
| FERI operates independently (G29) | less prone to herding behavior (C92) |
| Agency structure and behavior (D82) | sovereign ratings (F34) |