Quo Vadis, Raters? A frontier approach to identify overratings and underratings in sovereign credit risk

Huseyin Ozturk, Emili Tortosa-Ausina, Meryem Duygun and Mohamed Shaban

The European Journal of Finance, 2020, vol. 26, issue 15, 1463-1483

Abstract: This study analyses overratings and underratings in sovereign credit risk. The analysis uses partial frontier methods, a technique rarely applied in this literature. By combining a robust variant of the free disposal hull (FDH) estimator, we measure both underratings and overratings for individual countries and groups of countries. Particular attention is paid to comparing pre-crisis and crisis years in order to assess possible changes in the magnitude of the deviations. Our findings indicate a remarkable degree of both overratings and underratings during the analysed period (1999–2010), which partially vanish during the last years of the sample (2008–2010) – corresponding to the financial crisis – when many downgrades took place, especially in Eurozone countries. The results allow us to emphasize the importance of monitoring these deviations for sustainable financial stability. Our results also show the potential benefits of using partial frontier methods for measuring both underratings and overratings.

Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2020.1748678 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:26:y:2020:i:15:p:1463-1483

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2020.1748678

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().