Time series properties of a rating system based on financial ratios

Ulrich Krüger, Martin Stötzel and Stefan Trück
Authors registered in the RePEc Author Service: Stefan Trueck ()

No 2005,14, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

Abstract: This paper provides an overview on classical and new methods for testing time series properties of migration matrices. It is well known that due to cyclical behaviour of the economy transition matrices for many credit portfolios cannot be considered to be constant through time. Further, transition matrices are dependent on the used rating methodology. We investigate the changes in migrations of an extensiverating system based on financial ratios. Our findings are time-inhomogeneity, second-order Mrkov behaviour, a tendency for "rating equalization" and vast effects of migration behaviour on risk figures like expected shortfall and VaR. We further illustrate how changes in migration matrices can be related to macroeconomic factors.

Keywords: Reduced Form Models; Rating Transitions; Markov Property; Internal Rating Systems; Time Homogeneity; Matrix Norms (search for similar items in EconPapers)
JEL-codes: G13 G20 G33 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fin and nep-fmk
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp2:4269

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