Measures of Predictive Success for Rating Functions

Sebastian Ostrowski () and Peter Reichling ()
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Sebastian Ostrowski: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg
Peter Reichling: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg

No 100018, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: Aim of our paper is to develop an adequate measure of predictive success and accuracy of rating functions. At first, we show that the common measures of rating accuracy, i.e. area under curve and accuracy ratio, respectively, lack of informative value of single rating classes. Selten (1991) builds up an axiomatic framework for measures of predictive success. Therefore, we introduce a measure for rating functions that fulfills the axioms proposed by Selten (1991). Furthermore, an empirical investigation analyzes predictive power and accuracy of Standard & Poor's and Moody's ratings, and compares the rankings according to area under curve and our measure.

Keywords: Accuracy Measure; Rating Functions; Predictive Success; Discriminative Power (search for similar items in EconPapers)
JEL-codes: C52 G21 G33 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-08
New Economics Papers: this item is included in nep-for
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Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:100018

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