An Analysis of the Informational Value of Sovereign Credit Ratings

Kok-Tiong Lim () and Kian-Teng Kwek ()
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Kok-Tiong Lim: Faculty of Economics & Administration, University of Malaya
Kian-Teng Kwek: Faculty of Economics & Administration, University of Malaya

Malaysian Journal of Economic Studies, 2021, vol. 58, issue 1, 85-97

Abstract: The sovereign credit ratings (SCRs) have been an integral part in the global financial system in asset allocation and price discovery. The zero bound policy rate (ZBPR) and quantitative easing programme (QEP) rolled out by the four key central banks as antidotes to the global financial crisis (GFC) would have altered the assumed premise on SCRs relevancy. This preliminary study is crafted for a validation on whether the SCRs informational value on sovereign bond yields (SBYs) and sovereign credit default swap spreads (SCDSSs) was indeed affected when ZBPR and QEP were in effect. A sample of 32 countries with observations spanning from 2008 to 2017 to encompass the period of ZBPR and QEP in effect was used for analysis. The empirical results show that SCRs informational value was indeed rendered irrelevant on SBYs price discovery since 2008 and the effect on SCDSSs came in later from 2012 onwards.

Keywords: Quantitative easing programme; sovereign credit ratings; sovereign bond yields; sovereign credit default swap spreads; zero bound policy rate (search for similar items in EconPapers)
JEL-codes: C23 F34 G01 G15 G24 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:mjr:journl:v:58:y:2021:i:1:p:85-97

DOI: 10.22452/MJES.vol58no1.5

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