Effects of Rating Through Cycle on Rating Stability, Rating Timeliness and Default Predection Performance

35 Pages Posted: 3 Nov 2008

See all articles by Edward I. Altman

Edward I. Altman

New York University (NYU) - Salomon Center; New York University (NYU) - Department of Finance

Herbert A. Rijken

Vrije Universiteit Amsterdam (Free University)

Date Written: December 2004

Abstract

The role and performance of credit rating agencies are currently under debate. Several surveys conducted in the United States reveal that most investors believe that rating agencies are too slow in adjusting their ratings to changes in corporate creditworthiness. Well known is that agencies achieve rating stability by their through-the-cycle methodology. This study aims to provide quantitative insight in this methodology and to quantify the effects of this methodology on rating stability, rating timeliness and default prediction performance, from an investor's point-in-time perspective. We believe that our results can guide the search for an optimal balance between rating stability, rating timeliness and default prediction performance.

Suggested Citation

Altman, Edward I. and Rijken, Herbert A., Effects of Rating Through Cycle on Rating Stability, Rating Timeliness and Default Predection Performance (December 2004). NYU Working Paper No. FIN-04-032, Available at SSRN: https://ssrn.com/abstract=1294487

Edward I. Altman (Contact Author)

New York University (NYU) - Salomon Center ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0709 (Phone)
212-995-4220 (Fax)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Herbert A. Rijken

Vrije Universiteit Amsterdam (Free University) ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 5986101/6060 (Phone)
+31 20 5986020 (Fax)

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