A Rating Agency for Europe – A good idea?

This paper compares the sovereign rating performance of a large European based rating agency with the Big Three. Using monthly ratings for 56 advanced and emerging economies from June 1999 to October 2012, we explore if Feri behaves differently with respect to rating levels, propensity of down- or upgrade and volatility. In addition, we test for herding behaviour among agencies and "neighbourhood bias" using a gravity model. We find that Feri tends to have a negative "neighbourhood bias", i.e it was tougher on European countries than its anglo-saxon competitors before the crisis and downgraded them more swiftly and aggressively during the crisis. Also, Feri's sovereign ratings tend to be more volatile than the ones of the Big Three though less prone to herding.