Split sovereign credit ratings : the causes and implications for the financial markets

  • Huong Vu

    Research areas

  • PhD, School of Law


This thesis addresses two original research questions on split sovereign credit ratings. First, what factors drive split sovereign ratings? Second, how do split sovereign ratings influence the information content of sovereign rating events for the bond and stock markets? A rich daily dataset from 1997-2013 for 86 countries and three global credit rating agencies (CRAs) is utilised.Split sovereign credit ratings are determined by two elements: the differences in the CRAs’ credit rating methodologies and the sovereign information transparency. Judgements of political risk divide the CRAs’opinions more than economic fundamentals. Split ratings are induced by increases in political riskand Fitch’s ratingsare most negatively impacted bythis.Information transparency enhances the quality of ratings, leading to higher ratings by Moody’s versus S&P and Fitch. Opacity results in disagreements between Fitch and S&P, S&P havingthe tendency to assign lower ratings. On the other hand, government transparency reduces the divisionbetween them. Pre-event differences of opinion between S&P and Moody’s determine the extent to which bond spreads react to rating actions. Sovereign bond investors are more pessimistic about downgrades by S&P on the inferior ratings (lower ratings by S&P versus Moody’s immediately pre-event) than on the superior ratings (higher ratings by S&P versus Moody’s immediately pre-event). Upgrades by Moody’s have a positive market impact if the upgrades affect the superior ratings (higher ratings by Moody’s versus S&P). For the stock market, the differences of opinions between all three CRAs influence stock price reactions. Stock markets demonstrate similar asymmetric reactions to those reported for bond markets.


Original languageEnglish
Awarding Institution
Award date19 Dec 2014