The Influence of the Sovereign Credit Ratings on the Stability of the Financial Markets

Jakub Jakoubek

Studenteropgave: Speciale


With the development of the bond market came the need for an independent evaluation of the riskiness of the bonds. This demand resulted in an emergence of the credit rating agencies and their credit ratings. Sovereign credit ratings evaluate the risk of the bonds issued by sovereign governments, in other words a probability of a country’s default. The recent great recession started a discussion, whether the credit ratings contributed to the beginning of the crisis and destabilization of financial markets by issuing better ratings than the institutions or countries should have had. The purpose of this thesis is to analyse the determinants of sovereign credit ratings and to analyse whether the credit rating agencies have procyclical tendencies. This thesis’s hypothesis states that the rating agencies are issuing better ratings before the crisis, contributing to overheating of the economy. When the crisis emerges, the agencies drastically downgrade the ratings and subsequently they keep them underrated which contributes to worsening of the recession. Firstly, the theoretical rating will be estimated by multiple linear regressions followed by a mathematical model. The hypothesis will be analysed by a comparative and statistical analysis of the theoretical and actual sovereign rating. This thesis argues, that the sovereign credit ratings do not have procyclical tendencies, rather they are sticky to avoid fluctuations of the ratings.

UddannelserVirksomhedsledelse, (Bachelor/kandidatuddannelse) Kandidat
Udgivelsesdato3 sep. 2018
Antal sider97
VejledereSlobodan Kacanski