Credit ratings play a significant role in the fixed income markets as the entire regulatory framework is based on them. Thus, a significant part of what investors can and cannot do is dictated by ratings. Moreover, regulators and legislators have assumed that the credit rating scales of the three leading agencies (Moody’s, Fitch, and Standard & Poor’s) are equivalent.
In this study we show that in the Mexican fixed income market this assumption is not true. Therefore, our findings call into question the very foundation of the regulatory environment of the most important Latin American fixed income market. If our findings are also applicable to the U.S. fixed income market—a topic we are investigating at present— it would call for rethinking the global regulatory framework from scratch.
Autores: Ventura Charlin y Arturo Cifuentes