What If Credit Rating Agencies Were Downgraded? Ratings, Sovereign Debt and Financial Market Volatility

The activity of Credit Rating Agencies (CRAs) can lead to Excessive Volatility Risk (EVR), adversely affecting issuances of debt by sovereign governments. By EVR, we mean the risk of effects on bond yields, caused by ratings which are independent from the supply of new information (information discovery effect). EVR may depend on two factors: the fact that ratings are embodied into regulation (rating-based regulation effect); the communication policies adopted by CRAs (communication effect). If EVR is to be reduced, on one side it is necessary to eliminate rating-based regulation, and on the other to introduce forms of liability in the communication policies of CRAs.

[1]  Marcel Fratzscher,et al.  How Should Central Banks Deal with a Financial Stability Objective? The Evolving Role of Communication as a Policy Instrument , 2011 .

[2]  Tao Wang.  Can Reputation Concerns Always Discipline Credit Rating Agencies? Evidence from Corporate Bond Issuance Ratings , 2011 .

[3]  Ulrich G. Schroeter.  Credit Ratings and Credit Rating Agencies , 2011 .

[4]  R. Faff,et al.  Rating Alignment, Rating Shopping and Reputation of Credit Rating Agencies: Evidence from the Subprime Crisis , 2011 .

[5]  Bertrand Candelon,et al.  Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis , 2011, SSRN Electronic Journal.

[6]  Fabian Amtenbrink,et al.  Credit Rating Agencies , 2011 .

[7]  Marco Pagano,et al.  Credit Ratings Failures and Policy Options , 2009 .

[8]  Iuliana Ismailescu,et al.  The Reaction of Emerging Market Credit Default Swap Spreads to Sovereign Credit Rating Changes , 2009 .

[9]  Frank Partnoy,et al.  Rethinking Regulation of Credit Rating Agencies: An Institutional Investor Perspective , 2009 .

[10]  Benjamin J. Kormos.  Quis Custodiet Ipsos Custodes? Revisiting Rating Agency Regulation , 2008 .

[11]  J. Couzin,et al.  Boom and Bust , 2007, Science.

[12]  Franklin Allen,et al.  Beauty Contests and Iterated Expectations in Asset Markets , 2006 .

[13]  Spyros Pagratis.  Asset Pricing, Asymmetric Information and Rating Announcements: Does Benchmarking on Ratings Matter? , 2005 .

[14]  C. Hill.  Regulating the Rating Agencies , 2005 .

[15]  Lars Norden,et al.  Informational Efficiency of Credit Default Swap and Stock Markets: The Impact of Credit Rating Announcements , 2004 .

[16]  Alan G. White,et al.  The Relationship between Credit Default Swap Spreads, Bond Yields, and Credit Rating Announcements , 2004 .

[17]  Amar Gande,et al.  News Spillovers in the Sovereign Debt Market , 2003 .

[18]  R. Kräussl.  Do Credit Rating Agencies Add to the Dynamics of Emerging Market Crises? , 2003 .

[19]  Arnoud Boot,et al.  Credit Ratings as Coordination Mechanisms , 2002 .

[20]  Frank Partnoy.  The Paradox of Credit Ratings , 2001 .

[21]  Joseph E. Stiglitz,et al.  The Procyclical Role of Rating Agencies: Evidence from the East Asian Crisis , 1999 .

[22]  Frank Partnoy,et al.  The Siskel and Ebert of Financial Markets: Two Thumbs Down for the Credit Rating Agencies , 1999 .

[23]  H. Reisen,et al.  Boom and Bust and Sovereign Ratings , 1999 .