Factors influencing Sovereign

Rating of Countries

Avinash Agrawal 09P011

Jharna Aggarwal 09P025
J.K Pandey 09P026
Richa Negi 09P048
Saurav Gandhi 09P052
Shubhayan Das 09P054
Course of the Project…

1 2 3 4

Remove
Deciding Factors Remove Initial Regression undesired
Outliers
variables

Final Model
Analyzing Factors

Nominal GDP (US$ bil.)

GDP per capita (US$)

Investment/GDP (%)

Gross debt/GDP (%)

Surplus (Deficit)/GDP (%)

Usable Current Account Payments (months)

Current account balance/GDP (%)

Net external liabilities/CAR (%)

Methodology

Data Collection: Sovereign rating data was taken from S&P website of 96
countries

Tool: Eviews 5.0

Dependent Variable (DV): Sovereign Rating (Ranges from 0-9

Independent Variables (IV):

Data Cleaning: Outlier Treatment – We plotted scatter plots of DV with each

IV to identify outliers. They were removed from modeling

Modeling: Ordered Probit Model because our DV i.e. Sovereign Rating is

ordinal. (Ordered Probit model is explained later)

Scoring: We scored the data based on the model obtained to check the
goodness of fit.
S&P ratings
Choice of model

Ordered probit model

In this section you can provide list of

Don’ts.

We chose the Ordered Probit Model.

Ordered probit is a generalization of the popular probit analysis to the case of
more than two outcomes
of an ordinal dependent variable. Similarly, the logit method also has a
counterpart ordered logit
Scatter Plot of Independents
Initial Table
Intermediate 1: Outliers Removed
Correlation Matrix
Intermediate 2: Variables: CURRACCBALTOGDP and NETEXTLIABILCAR
removed
Intermediate 3: Variable: debttogdp removed because of high p value
Final Output

Z score=Σbixi
Rating = 0.000563*Nomgdp + 7.66E-
05*PercapitaGDP +
0.086261*Reservessuff + 0.028786*Invr
+ 0. 078080*Fiscalsurplus
Normality of Error
Limitations

• We have not taken political risk into account because it is very

difficult to quantify and hence could not be incorporated.

• Suboptimal sample size as data for countries with low Sovereign

Ratings (CCC and below) was not available.

• Intuitively strong independent variable like Debt-to-GDP ratio

were not substantiated from the model.
Thank You