People
People Job Market Candidates Doctoral Students PhD Representatives Alumni Supervisors Lecturers Coordinators Job Market Candidates Tommaso Bighelli Job market paper: "The…
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Media Response
Media Response July 2024 Oliver Holtemöller: “Wirtschaft in Ostdeutschland wächst schneller als in Westdeutschland” in: Mitteldeutscher Rundfunk, 02.07.2024 Oliver Holtemöller:…
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IWH Summer Forecast: German economy still on the defensive – but first signs of an end to the downturn In the first half of 2024, signs of an economic recovery are increasing.…
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Market-implied Ratings and Their Divergence from Credit Ratings
Iftekhar Hasan, Winnie P. H. Poon, Jianfu Shen, Gaiyan Zhang
Journal of Financial Research,
No. 2,
2023
Abstract
In this article, we investigate the divergence between credit ratings (CRs) and Moody's market-implied ratings (MIRs). Our evidence shows that rating gaps provide incremental information to the market regarding issuers' default risk over CRs alone in the short horizon and outperform CRs over extended horizons. The predictive ability of rating gaps is greater for more opaque and volatile issuers. Such predictability was more pronounced during the 2008 financial crisis but weakened in the post-Dodd-Frank Act period. This finding is consistent with credit rating agencies' efforts to improve their performance when facing regulatory pressure. Moreover, our analysis identifies rating-gap signals that do (do not) lead to subsequent Moody's actions to place issuers on negative outlook and watchlists. We find that negative signals from MIR gaps have a real economic impact on issuers' fundamentals such as profitability, leverage, investment, and default risk, thus supporting the recovery-efforts hypothesis.
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Joint Economic Forecast
Joint Economic Forecast The joint economic forecast is an instrument for evaluating the overall economic situation and development in Germany, the euro area and the rest of the…
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People
People Job Market Candidates Doctoral Students PhD Representatives Alumni Supervisors Lecturers Coordinators Job Market Candidates Tommaso Bighelli Job market paper: "The…
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Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
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Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
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PhD Graduates Financial Markets
PhD Graduates of the Department of Financial Markets Willam McShane: "The Competitive Effects of Financial Fragility" (2023) Talina Sondershaus: "Unintended Side Effects of…
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Archive
Media Response Archive 2021 2020 2019 2018 2017 2016 December 2021 IWH: Ausblick auf Wirtschaftsjahr 2022 in Sachsen mit Bezug auf IWH-Prognose zu Ostdeutschland: "Warum Sachsens…
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