RT Journal Article
SR Electronic
T1 The Complementary Nature of Ratings and Market-Based Measures of Default Risk
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 38
OP 47
DO 10.3905/jfi.2007.688964
VO 17
IS 1
A1 Gunter Löffler
YR 2007
UL https://pm-research.com/content/17/1/38.abstract
AB Agency ratings and market-based measures of default risk are useful complements. Combining the two improves the prediction of defaults over the use of a single measure. While in-sample analysis suggests that one should give more weight to ratings as the horizon increases, or issuers become less risky, a simple equal-weight combination of ratings and market-based measures is hard to beat out of sample. The results suggest that both ratings and market-based measures provide genuine information of their own.TOPICS: Fixed income and structured finance, credit risk management, analysis of individual factors/risk premia