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Quo Vadis, Raters? A frontier approach to identify overratings and underratings in sovereign credit risk

�zt�rk, H�seyin; Tortosa-Ausina, Emili; Duygun, Meryem; Shaban, Mohamed

Quo Vadis, Raters? A frontier approach to identify overratings and underratings in sovereign credit risk Thumbnail


H�seyin �zt�rk

Emili Tortosa-Ausina

Aviva Chair in Risk and Insurance

Mohamed Shaban


This study analyses overratings and underratings in sovereign credit risk. The analysis uses partial frontier methods, a technique rarely applied in this literature. By combining a robust variant of the free disposal hull (FDH) estimator, we measure both underratings and overratings for individual countries and groups of countries. Particular attention is paid to comparing pre-crisis and crisis years in order to assess possible changes in the magnitude of the deviations. Our findings indicate a remarkable degree of both overratings and underratings during the analysed period (1999-2010), which partially vanish during the last years of the sample (2008-2010)-corresponding to the financial crisis-when many downgrades took place, especially in Eurozone countries. The results allow us to emphasize the importance of monitoring these deviations for sustainable financial stability. Our results also show the potential benefits of using partial frontier methods for measuring both underratings and overratings.

Journal Article Type Article
Acceptance Date Feb 24, 2020
Online Publication Date Apr 3, 2020
Publication Date Apr 3, 2020
Deposit Date Jul 31, 2020
Publicly Available Date Oct 4, 2021
Journal European Journal of Finance
Print ISSN 1351-847X
Electronic ISSN 1466-4364
Publisher Taylor & Francis (Routledge)
Peer Reviewed Peer Reviewed
Keywords credit rating agency; partial frontier; rating; sovereign credit risk JEL Classification Numbers: C51; E44; G15; G24 Communications to: Emili Tortosa-Ausina
Public URL
Publisher URL
Additional Information This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 03/04/2020, available online:


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