The Information Content of Sovereign Watchlist and Outlook: S&P versus Moody’s

Rasha Alsakka and Owain Gwilym

Chapter 7 in Bank Strategy, Governance and Ratings, 2011, pp 134-156 from Palgrave Macmillan

Abstract: Abstract Credit rating agencies play an essential role in global financial markets through the production of credit information and its distribution to market participants. Moody’s Investors Service and Standard & Poor’s (S&P) dominate the global credit rating industry, accounting for 80 per cent of the market (Alsakka and ap Gwilym, 2010a). Rating changes have long been the key means available to signal improving and deteriorating fundamental credit quality. However, rating changes are not the only signals provided by the agencies. Rating outlooks and reviews (the Watchlist) are supplemental tools to communicate potgntial changes in issuer credit quality. Rating outlooks/Watchlists were developed to provide indicators of the likely direction and timing of future rating changes (Hamilton and Cantor, 2004). Therefore, a complete credit opinion from a given rating agency consists of a credit rating and a rating outlook/Watchlist status. One of the criticisms of agencies is their apparently slow reactions in changing ratings. However, because of agencies’ ‘through the cycle’ methodology and the sound reasons for stability in ratings (see Part III), signals from Watchlist and outlook are very likely to be the source whereby the agencies provide most information to financial markets. Despite this, there is little empirical evidence on rating outlook and Watchlist (see Li et al., 2008).

Keywords: Rating Outlook; Credit Default Swap; Sovereign Debt; Credit Default Swap Spread; Credit Rating Agency (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:pal:pmschp:978-0-230-31386-6_8

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230313866

DOI: 10.1057/9780230313866_8

Access Statistics for this chapter

More chapters in Palgrave Macmillan Studies in Banking and Financial Institutions from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().