What does this research mean for the field?

Market-based structural credit risk measures consistently outperform traditional issuer-paid and subscriber-paid ratings in explaining yield and CDS spreads, though traditional ratings remain valuable for predicting realized default events. Novelty: ClaimNovelty.INCREMENTAL. Consensus alignment: ConsensusAlignment.NEUTRAL.

What question did this study set out to answer?

The research aims to compare the performance of issuer-paid and subscriber-paid credit ratings in predicting financial outcomes.

May 17, 2026The Journal of Fixed Income

Do Market-Based Models Outperform Subscriber-Paid Ratings? Evidence from the Bond and CDS Markets

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Authors

LFLisa Fairchild YSYoon S. Shin

Discussion

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Overview

Randomized trial compares credit rating effectiveness in predicting yields and defaults, indicating market-based measures are superior for pricing credit risk.

Key Points

The research aims to compare the performance of issuer-paid and subscriber-paid credit ratings in predicting financial outcomes.
Sample included 4,230 corporate bonds issued by US industrial firms from 2001 to 2020.
Comparison of credit ratings from Standard & Poor’s, Egan-Jones, and Bloomberg across four financial outcomes.
Used non-nested likelihood ratio test for model selection and performance evaluation.
Bloomberg consistently outperforms S&P ratings in explaining yield and CDS spreads with superior data incorporation.
S&P ratings are more accurate than EJR in predicting terminal default risk, but overall, Bloomberg is the strongest predictor.
All measures show reduced predictive power for defaults in investment-grade bonds due to rarity of events.

Cite This Study

Fairchild et al. (2026) studied this question.

synapsesocial.com/papers/6a095c5d7880e6d24efe2744 https://doi.org/10.3905/jfi.2026.001

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May 17, 2026The Journal of Fixed Income

Do Market-Based Models Outperform Subscriber-Paid Ratings? Evidence from the Bond and CDS Markets

View Full Paper

Ask AI

Bookmark

Authors

LFLisa Fairchild YSYoon S. Shin

Discussion

Member takes

Overview

Randomized trial compares credit rating effectiveness in predicting yields and defaults, indicating market-based measures are superior for pricing credit risk.

Key Points

The research aims to compare the performance of issuer-paid and subscriber-paid credit ratings in predicting financial outcomes.
Sample included 4,230 corporate bonds issued by US industrial firms from 2001 to 2020.
Comparison of credit ratings from Standard & Poor’s, Egan-Jones, and Bloomberg across four financial outcomes.
Used non-nested likelihood ratio test for model selection and performance evaluation.
Bloomberg consistently outperforms S&P ratings in explaining yield and CDS spreads with superior data incorporation.
S&P ratings are more accurate than EJR in predicting terminal default risk, but overall, Bloomberg is the strongest predictor.
All measures show reduced predictive power for defaults in investment-grade bonds due to rarity of events.

Cite This Study

Fairchild et al. (2026) studied this question.

synapsesocial.com/papers/6a095c5d7880e6d24efe2744 https://doi.org/10.3905/jfi.2026.001

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