Journal of Credit Risk

Reliability and agreement of credit ratings in the Mexican fixed-income market

Ventura Charlin and Arturo Cifuentes

  • Results show high inter-rater reliability (similar ordinal relationship) among the agencies.
  • Major discrepancies among the ratings were found using the Wilcoxon signed-ranks test.
  • Findings challenge the ratings-equivalence assumptions behind the regulatory framework.

Credit ratings play an important role in the bond market, as the regulatory framework of this sector is based on ratings. A critical assumption is that the ratings of all the rating agencies are equivalent, ie, they exhibit very close agreement. This paper, borrowing concepts from measurement, test and psychometric theories, explores this issue in the Mexican corporate bond market. The ratings of all three credit rating agencies (CRAs) show a high degree of inter-rater reliability (similar ordinal relationships implied by the ratings); they only exhibit a mild level of inter-rater agreement (the degree to which two CRAs give the same rating), and they reveal significant discrepancy in ranking in paired observations. In summary, the three CRAs give ratings that are not equivalent, as their respective distributions are dissimilar. Therefore, our results challenge the suitability of ratings as a useful metric for regulatory purposes, as they create the possibility of arbitrage (rating shopping).

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here