Ontologies for the effects of credit rating agencies on financial participates ZeAn Xia Laboratory for Financial Intelligence and Financial Engineering, Southwestern University of Finance and Economics, China

outline Introduction Related work Ontologies for effect of credit rating on issuers and investors Evaluation with the bankruptcy of Lehman Brothers Conclusion SWUFE-FIFE2

Credit rating agencies play important role and make significant impact on financial participates. Ontology is a formal, explicit specification of a shared conceptualization, utilizing ontology to represent the effect of CRAs on financial participates could further deepen our understanding of the effect. Ontologies for the domain knowledge The Lehman Brothers’ case is used to illustrate our. SWUFE-FIFE3

Previous researches have shown that credit ratings affect the price of asset which is directly related to the credit rating as well as the indirectly related assets (Haan, Jakob De and Amtenbrink, Fabian,2011). Generally speaking, there are two ways the credit rating make effect to financial participates: The first way is enforcement channel. It means that regulation forbid some financial institution, such as commercial banks and pension funds, to invest in financial instruments with too low credit rating degree. The second way is the non-enforcement channel. Since CRAs have access to no-public information of the rated individual, so the credit rating report may provide new information to markets(Kuntara Pukthuanthong-Le, Fayez A. Elayan, Lawrence C. Rose,2007). negative rating reports provide no new information, they often caused panic in the market, and thus lead to herding(Guillermo A. Calvo, Enrique G. Mendoza,2000). SWUFE-FIFE4

Jurisica(2004) et al. classified the Ontologies into four broad categories: static, dynamic, social, and intentional [14]. In our research, only the former three will be used. Static ontology represents the static aspect of the financial market and defines the basic concepts for ECFP, e.g. credit rating agency, issuers. Social ontology represents knowledge about the social structure of financial institutions, which implies the channels through which the credit rating affects issuers and investors. Dynamic ontology deals with knowledge of the effecting process with both enforce and non-enforce channels. SWUFE-FIFE5

Social ontology represents Relationship between CRAs and issuers: Rating service relationship. Relationship between CRAs and investors: regulation relationship, information relationship and mood relationship. Relationship between investors and issuers: Exchange relationship. SWUFE-FIFE6

Evaluation with the bankruptcy of Lehman Brothers Case introduction Case analysis SWUFE-FIFE7

Thank you! kiitos SWUFE-FIFE8