Abstract
M.Comm.
The idea this dissertation presents is that the reason why credit rating agencies may have been unable to predict crises is because the method they use in making rating decisions called the through-the-cycle-methodology is such that they are reactive and not proactive when it comes to signalling crises. This makes ratings more of a coincident indicator and not a leading indicator when it comes to signalling crises. The fact that credit rating agencies may be reactive in signalling crises should probably not be negatively perceived as has been in some cases discussed in this dissertation. This is because the original mandate of credit rating agencies was not to predict crises but to signal the creditworthiness of securities that are put up for sale.
This paper adds more support to arguments put forth by other authors that show that the through-the-cycle-methodology used by credit rating agencies is one of the reasons for untimely rating changes. What makes this paper different though is that it uses sectoral analysis to make the argument.