Determinants and Impact of Sovereign Credit Ratings

[...]To explore these questions, we present the firstsystematic analysis of the determinants and impact of thesovereign credit ratings assigned by the two leading U.S.agencies, Moody’s Investors Service and Standard andPoor’s.1 Such an analysis has only recently become possibleas a result of the rapid growth in sovereign rating assignments.The wealth of data now available allows us to estimatewhich quantitative indicators are weighed mostheavily in the determination of ratings, to evaluate the predictivepower of ratings in explaining a cross-section ofsovereign bond yields, and to measure whether ratingannouncements directly affect market yields on the day ofthe announcement.[...]