PT  - JOURNAL ARTICLE
AU  - Gunter Löffler
TI  - The Complementary Nature of Ratings and Market-Based Measures of Default Risk
AID  - 10.3905/jfi.2007.688964
DP  - 2007 Jun 30
TA  - The Journal of Fixed Income
PG  - 38--47
VI  - 17
IP  - 1
4099  - https://pm-research.com/content/17/1/38.short
4100  - https://pm-research.com/content/17/1/38.full
AB  - Agency ratings and market-based measures of default risk are useful complements. Combining the two improves the prediction of defaults over the use of a single measure. While in-sample analysis suggests that one should give more weight to ratings as the horizon increases, or issuers become less risky, a simple equal-weight combination of ratings and market-based measures is hard to beat out of sample. The results suggest that both ratings and market-based measures provide genuine information of their own.TOPICS: Fixed income and structured finance, credit risk management, analysis of individual factors/risk premia