Bond Rating Discrepancies and the Effect on Municipal Bond Yields
DOI:
https://doi.org/10.1016/1057-0810(91)90043-XAbstract
This paper examines municipal bond rating discrepancies and their impact on interest yield premia. The results indicate that there is no systematic difference between Moody’s and S&P’s assigned ratings, regardless of whether generic or modified rating systems are employed. The results also indicate that when generic rating systems are used, there is no significant difference in yield premia between bonds with split ratings and bonds with equivalent ratings. Results are different, however, when modifiers are considered. Although superior and inferior S&P’s ratings (holding Moody’s ratings fixed) still do not affect the yield premium, superior ratings assigned by Moody’s (holding S&P’s fixed) do lower the interest yield premium significantly. Quarterly Journal of Business and Economics, Vol. 30, No. 1 (Winter 1991), pp. 110-127. (Reprinted with permission of the Quarterly Journal of Business and Economics.)
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