Federal Reserve & Academic Studies
An Examination of Rating Agencies’ Around The Investment Grade Boundary
Direct excerpts and conclusions:
Overall, it is robustly the case that S&P’s re-grades moved in the direction of EJR’s earlier ratings. It appears more likely that this result reflects systematic differences between the two firms rating policies than a small number of lucky guesses by EJR.
A comparison between S&P’s and EJR’s ratings shows that, conditional on S&P’s upgrading or downgrading a firm,its new grade was correlated with the grade EJR had awarded at least ten weeks earlier. This suggests that S&P defines its ratings more widely in terms of default probabilities than EJR.
It also suggests that S&P’s large downgrades do not occur immediately after negative surprises to firms, but rather after a steady accumulation of bad news which EJR’s ratings previously reflected.
S&P ratings converge toward Egan-Jones Ratings.
Richard Johnson, Research Division, Federal Reserve Bank of Kansas City, Feb 2003, RWP030.
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Differential Timing and Accuracy in the Ratings of Certified vs. Non-Certified Bond Rating Agencies
Stanford University and University of Michigan studies
Direct excerpts and conclusions:
Credit ratings from Egan-Jones more accurately reflect information in the marketplace and are frequently up to 237 days ahead of actions taken by Moody’s and S&P.
The powerful market incentives resulting from the investor supported, independent business model of Egan-Jones Ratings Company produces more timely and accurate ratings with predictive value.
William H Beaver, Graduate School of Business, Stanford University, Stanford Ca 94305
Catherine Shakespere, Mark T. Soliman, University of Michigan, Ann Arbor Mi. 48109.
First version 2003, Second version, June 2006.
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