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|Title: ||HOW RATING AGENCIES ACHIEVE RATING STABILITY|
|Authors: ||Altman, Edward I.|
Rijken, Herbert A.
|Keywords: ||Rating Agencies|
"through-the-cycle" rating methodology
credit scoring models
|Issue Date: ||Dec-2003|
|Series/Report no.: ||S-CDM-03-12|
|Abstract: ||Surveys on the use of agency credit ratings reveal that most investors believe that rating agencies are relatively slow in adjusting their ratings. A well-accepted explanation for this perception on the timeliness of agency ratings is the "through-the-cycle" methodology, which agencies apply in their rating assessments, while investors have a "point-in-time" perception on the creditworthiness. The “through-the-cycle” methodology aims to suppress the sensitivity of the ratings to short-term fluctuations in credit quality. This article focuses on the migration policy of rating agencies as a second source of rating stability. In a benchmark study with credit scoring models we show that both the "through-the-cycle" methodology and the conservative migration policy are responsible for the investors' perception of the rigidity of agency ratings.|
|Appears in Collections:||Credit & Debt Markets|
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