Rating the Sovereigns: Does It Work?

• Thesis title in Czech: Ratingy států: fungují?
• Thesis title in English: Rating the Sovereigns: Does It Work?
• English key words: Sovereign rating, rating methodologies, sovereign default, Credit Rating Agencies, global financial crisis
• Academic year of topic announcement: 2010/2011
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: prof. Petr Janský, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 06.11.2010
• Date of assignment: 04.03.2011
• Date and time of defence: 14.06.2011 00:00
• Venue of defence: IES
• Date of electronic submission: 20.05.2011
• Date of proceeded defence: 14.06.2011
• Opponents: Mgr. Ondřej Lopušník

References

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Evidence for the Two Leading Agencies, February 2002

Arezki, R. et al (2011): Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis, IMF working paper; 2011

Bloomberg (2009): S&P, Moody’s Defend Pay Model Faulted by Regulators (Update1); April 2009

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Moody’s Investors Service (2008): Sovereign Bond Rating, Rating methodology, 2008*
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Moody’s Investors Service (2010): European Sovereign Outlook, 2010*
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Moody’s Investors Service (2010): Moody’s Sovereign Rating Process (Power Point presentation), March 2010*
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Moody’s Investors Service (2010): Sovereign Default and Recovery Rates, 1983-2009, 2010

Reinhart, C., Rogoff, K. (2008): This Time is different: Panoramic View of Eight Centuries of Financial Crisis; April 2008

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Standard & Poors (2007): Understanding Sovereign Risk; August 2007
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Sy, A.N.R. (2003): Rating the Rating Agencies: Anticipating Currency crisis of Debt Crisis, IMF Working paper, June 2003

Wignall, A., Atkinson, P., Lee, S. (2008): The current financial Crisis: Causes and Policy Issues, IOECD, 2008

Preliminary scope of work

Vliv ratingových agentur a tedy i sovereign ratingu se značně zvyšoval zejména v posledních dvaceti letech. Nedávná ekonomická krize zdůraznila, jak důležité je stanovovat sovereign ratingy správně, objektivně, transparentně a ve správný okamžik. Cílem této práce je podívat se pod pokličku ratingových agentur a analyzovat metodologie, které používají při stanovování sovereign ratingu. Podrobně popisuji jednotlivé indikátory, které jsou brány v úvahu, stejně tak jako rozdíly v metodologiích tří největších ratingových agentur. Empirická část mé práce se snaží ověřit schopnost ratingových agentur předvídat sovereign default a dále prověřuje, zda jedna z největších ratingových agentur neposkytuje obecně vyšší či nižší sovereign ratingy než ostatní.

Preliminary scope of work in English

The sovereign rating business has developed very fast in the last two decades. The recent economic turmoil proved how important it is to set up sovereign ratings in a correct, objective, transparent way and at the right time. The goal of this thesis is to look under the surface of Rating Agencies and analyze their sovereign rating methodologies from the economic perspective. I describe the individual indicators of the sovereign rating assessment, as well as the differences in the sovereign rating methodologies of the three biggest Rating Agencies. The empirical section tries to verify the ability of sovereign ratings to predict sovereign default as well as it explores the possibility that one of the three biggest Rating Agencies would provide systematically higher or lower sovereign ratings.