Department of Economics and Business Economics

Credit rating dynamics and competition

Publication: Research - peer-reviewJournal article

I analyze the market for credit ratings with competition between more than two rating agencies. How can honest rating behavior be achieved, and under which conditions can a new honest rating agency successfully invade a market with inflating incumbents? My model predicts cyclic dynamics if sophisticated investors have a high impact on agencies’ reputation. In contrast, if trusting investors have the main impact, then the dynamics exhibits a saddle point rather than cycles. In this case, regulatory support for honest rating agencies is only needed for a limited time, but the effect is sustainable in the long run.
Original languageEnglish
JournalJournal of Banking & Finance
Volume49
Pages (from-to)100-112
Number of pages13
ISSN0378-4266
DOIs
StatePublished - Dec 2014

Bibliographical note

Campus adgang til artiklen / Campus access to the article

    Keywords

  • Credit rating agencies, Ratings inflation, Evolutionary game theory

See relations at Aarhus University Citationformats

ID: 81861824