A Comparative Analysis of Country Ratings and Credit Default Swap Premiums in Determining Risk Premium in BRICS-T Countries

Tansu Kutuk and Mustafa Okur
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Tansu Kutuk: Kare Portfolio Management
Mustafa Okur: Marmara University

Business and Economics Research Journal, 2020, vol. 11, issue 2, 413-429

Abstract: Sovereign credit ratings have a significant impact on the costs of funds obtained from international markets. In this respect, the reliability and impartiality of credit ratings are very important, especially for developing countries. The aim of this study is to reveal how real the credit ratings of countries and institutions reflect the existing situation, how transparent and reliable the evaluation processes are. In order to investigate the effect of credit ratings; macroeconomic data, CDS premiums and banking-finance indices of BRICS-T countries were evaluated before and after the rating changes and analyzed with the help of tables and graphs. At this point, in order to analyze the impact of credit ratings to the banking sector; the selected public bank’s and country’s ratings were evaluated by analyzing the change in share prices and financial ratios of these banks. It was evidenced that movements in CDS premiums reflect the credit reliability of countries and the banks more realistically than the credit ratings. By extending the scope of the study with BRICS countries we differentiated if from the previous literature. In this regard, also an international dimension was added to the study.

Keywords: Credit Ratings; BRICS Countries; Credit Default Swaps (CDS) (search for similar items in EconPapers)
JEL-codes: G15 G20 G21 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ris:buecrj:0480

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