A comparative study on the estimation of factor migration models

Areski Cousin () and Mohamed Reda Kheliouen
Additional contact information
Areski Cousin: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Mohamed Reda Kheliouen: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon

Working Papers from HAL

Abstract: In this paper, we study the statistical estimation of some factor migration models. This class of models is based on the assumption that rating migrations are driven by a set of common factors representing the business cycle evolution. In particular, we compare the estimation of the ordered Probit model as described for instance in Gagliardini and Gourieroux (2005) and of the multi-state latent factor intensity model used in Koopman et al. (2008). For these two approaches, we also distinguish the case where the underlying factors are observable and the case where they are assumed to be unobservable. The paper is supplied with an empirical study where the estimation is made on historical Standard & Poor's rating data on the period [01/2006 − 01/2014]. We find that the intensity model with observable factors is the one that best fits empirical transition probabilities. In line with Kavvathas (2001), this study shows that short migrations of investment grade firms are significantly correlated to the business cycle whereas, because of lack of observations, it is not possible to state any relation between long migrations (more than two grades) and the business cycle. Concerning non investment grade firms, downgrade migrations are negatively related to business cycle whatever the amplitude of the migration.

Keywords: multi-state latent intensity model; ordered Probit model; Factor migration models; mobility index; Kalman filter (search for similar items in EconPapers)
Date: 2016-08-08
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01351926v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://shs.hal.science/halshs-01351926v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-01351926

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().