Investment Strategy Development Based on the Credit Rating Modelling in the Russian Bond Market

This study contributes to research on determinants of credit ratings, analyzing National Rating Agency’s (NRA) rating assignments in Russia. The goal of the first part is to build the model by identifying some of the factors that influence the decisions of NRA managers in assigning specific ratings. The results are expected to point out that the variables, that influence NRA managers decisions, include but not limited to several fundamental characteristics of the issuer, such as Debt Service Coverage Ratio (DSCR), Net debt/EBITDA, D/E Ratio, Current Ratio, ROA, EBIT margin, EBIT growth, as well as several characteristics that pertain to the issue itself, such as Amount issued, Duration, Coupon type, Guarantee type and others. The model is expected to give ratings to unrated issues of middle-sized companies, which have the tendency to show growth in the forecoming business cycle. The goal of the second part of this study is to construct an investment portfolio based on quality factor. This constructed portfolio is expected to outperform comparable benchmarks (e.g. MOEX corporate bond index RUCBICP) thus proving that synthetic credit ratings being determinants of the bonds yield can bring the practitioner extra returns on different metrics (Sharpe Ratio, Max Drawdown).