How rating agencies achieve rating stability

摘要: Abstract Surveys on the use of agency credit ratings reveal that some investors believe rating agencies are relatively slow in adjusting their ratings. A well-accepted explanation for this perception timeliness is through-the-cycle methodology use. According to Moody’s, stable because they intended measure default risk over long investment horizons, and changed only when confident observed changes a company’s profile likely be permanent. To verify explanation, we quantify impact long-term horizon prudent migration policy stability from perspective an investor – with no desire stability. This done by benchmarking financial ratio-based (credit-scoring) agency-rating prediction model default-prediction models various time horizons. We also examine rating-migration practices. The final result better quantitative understanding methodology. By varying estimation models, search best match model. Consistent agencies’ stated objectives, conclude focused term. In contrast one-year place less weight short-term indicators quality. demonstrate focus horizons explains part relative other aspect even more important factor underlying find migrations triggered difference between actual predicted exceeds certain threshold level. When triggered, adjust partially, consistent known serial dependency migrations.