Department of Economics and Business Economics

Credit rating dynamics and competition

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

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
Pages (from-to)100-112
Number of pages13
Publication statusPublished - Dec 2014

Bibliographical note

Campus adgang til artiklen / Campus access to the article

    Research areas

  • Credit rating agencies, Ratings inflation, Evolutionary game theory

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