City Research Online

Abstract

This study estimates default probabilities of 124 emerging countries from 1981 to 2002 as a function of a set of macroeconomic and political variables. The estimated probabilities are then compared with the default rates implied by sovereign credit ratings of three major international credit rating agencies (CRAs) - Moody's Investor's Service, Standard & Poor's and Fitch Ratings. Sovereign debt default probabilities are used by investors in pricing sovereign bonds and loans as well as in determining country risk exposure. The study finds that CRAs usually underestimate the risk of sovereign debt as the sovereign credit ratings from rating agencies are usually too optimistic.

Publication Type:	Article
Additional Information:	This is an Accepted Manuscript of an article published by Taylor & Francis in Journal of Applied Statistics on 01 Aug 2008, available online: http://wwww.tandfonline.com/10.1080/02664760802193112
Publisher Keywords:	Credit rating agencies, Credit ratings, Default probabilities, Sovereign debt
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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