Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/156400
Authors: 
El-Shagi, Makram
von Schweinitz, Gregor
Year of Publication: 
2017
Series/Report no.: 
IWH Discussion Papers 1/2017
Abstract: 
Sovereign ratings have frequently failed to predict crises. However, the literature has focused on explaining rating levels rather than the timing of rating announcements. We fill this gap by explicitly differentiating between a decision to assess a country and the actual rating decision. Thereby, we account for rational inattention of rating agencies that exists due to costs of reassessment. Exploiting information of rating announcements, we show that (i) the proposed differentiation significantly improves estimation; (ii) rating agencies consider many nonfundamental factors in their reassessment decision; (iii) markets only react to ratings providing new information; (iv) developed countries get preferential treatment.
Subjects: 
rating agencies
sovereign risk
rational inattention
JEL: 
C25
F34
G24
Document Type: 
Working Paper

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