Title: Study of sovereign credit rating determinants: A Bayesian averaging model
Authors: abir melki - high institute of management in tunisia (Tunisia)
Mounira Ben Arab - University of Tunis (Tunisia)
Zied Ftiti - EDC Paris Business School (France) [presenting]
Abstract: The impact of the debt crisis on sovereign credit rating assessment in 24 European countries is examined over the period spans from 2005 to 2016. Due to the heterogeneity that exists between countries of the sample, we separate the sample into two sub-samples: GIIPS and off-GIIPS. Given the uncertainty issue related to estimated parameters as well as model space, we set up a Bayesian Averaging Model. The results suggest that unemployment, inflation and DEBT per GDP ratio are common and robust factors behind rating during both periods and for two groups of countries. We find also that external debt, governance indicators and GDP per capita seem to be significant during both periods in GIIPS, however, their importance becomes significant for the second group during post-crisis only. The results support the criticisms delivered to rating agencies concerning their methodology's instability, pro-cyclical behavior that leads to their failure to anticipate a crisis.