Which rating agency is the most accurate in forecasting sovereign spreads in emerging markets?

- "Sovereign ratings contain vital information concerning the quality of economic fundamentals. We use the agencies’ vision of risk to determine their ability to forecast sovereign spreads in 28 emerging markets. A number of conclusions may be drawn from this:
• Ratings and risk aversion explain approximately 63% of sovereign spreads. S&P and Fitch are level pegging in terms of effectiveness, closely followed by Moody’s.
• The forecasting power of ratings on spreads coincides in 61% of the cases among our entire sample.
• S&P ratings are the best performers in terms of forecasting spreads in Argentina, Brazil, Colombia, the Dominican Republic and Pakistan, Fitch outperforms its peers concerning Russia and Malaysia, and Moody’s for Mexico."
- "The relevance of the ratings increases when we add co-movements to our models (84% of spreads explained). With contagion:
• The ranking of rating agencies is not disrupted.
• There is convergence in 82% of our sample.
• Fitch ratings are the best performers in determining spreads in Hungary, Poland and Russia. S&P is the most accurate for spreads in Argentina and Pakistan and Moody’s for spreads in Uruguay."

Natixis Flash Economics 419 20100827

No comments:

Post a Comment