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The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
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The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
The growing role of nonbank financial institutions, or NBFIs, in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability.
The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
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| March 1997 Number 9711 |
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Authors: Richard Cantor, Frank Packer, and Kevin Cole Despite the fact that over 50 percent of all corporate bonds have different ratings from Moody's and Standard and Poor's at issuance, most bond pricing models ignore these differences of opinion. Our work compares a number of different methods of accounting for split ratings in estimating bond pricing models. We find that pricing rules that use only the Moody's or Standard and Poor's ratings produce unbiased but highly inefficient forecasts. If models rely instead on simply the higher or lower of the two ratings (but not both), greater bias is introduced with insignificant gains in efficiency. In general, the average rating is the best guide to predicting yields in terms of both bias and forecast prediction. However, the forecasting advantage from using the average rating rather than the lower rating derives almost entirely from the below-investment-grade subsample. |
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30 pages / 759 kb
