{"title":"The Technology of Ratings Then and Now; Hiding in Plain Sight","authors":"Berry K. Wilson, John T. Donnellan","doi":"10.1111/fmii.12035","DOIUrl":null,"url":null,"abstract":"The subprime crisis seriously undermined the credibility of the rating agencies and their approach to analyzing credit risk. Along with other identified problems with bond ratings, this study investigates the issue that the technology used by the ratings agencies is at best dated and little changed since John Moody published his first bond ratings in 1909. The study compares the predictive accuracy of Moody's bond ratings with the structural modeling approach of Vassalou and Xing (2004), using railroad data from the Great Depression. Study results show that the structural modeling approach outperforms the expert judgment incorporated in Moody's bond ratings from that period.","PeriodicalId":39670,"journal":{"name":"Financial Markets, Institutions and Instruments","volume":"25 1","pages":"49-74"},"PeriodicalIF":0.0000,"publicationDate":"2016-01-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/fmii.12035","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Financial Markets, Institutions and Instruments","FirstCategoryId":"1085","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/fmii.12035","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"Economics, Econometrics and Finance","Score":null,"Total":0}
引用次数: 1
Abstract
The subprime crisis seriously undermined the credibility of the rating agencies and their approach to analyzing credit risk. Along with other identified problems with bond ratings, this study investigates the issue that the technology used by the ratings agencies is at best dated and little changed since John Moody published his first bond ratings in 1909. The study compares the predictive accuracy of Moody's bond ratings with the structural modeling approach of Vassalou and Xing (2004), using railroad data from the Great Depression. Study results show that the structural modeling approach outperforms the expert judgment incorporated in Moody's bond ratings from that period.
期刊介绍：
Financial Markets, Institutions and Instruments bridges the gap between the academic and professional finance communities. With contributions from leading academics, as well as practitioners from organizations such as the SEC and the Federal Reserve, the journal is equally relevant to both groups. Each issue is devoted to a single topic, which is examined in depth, and a special fifth issue is published annually highlighting the most significant developments in money and banking, derivative securities, corporate finance, and fixed-income securities.
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