Evidence of non-Markovian behavior in the process of bank rating migrations
AbstractThis paper estimates transition matrices for the ratings on �nancial insti- tutions, using an unusually informative data set. We show that the process of rating migration exhibits signi�cant non-Markovian behavior, in the sense that the transition intensities are a¤ected by macroeconomic and bank spe- ci�c variables. We illustrate how the use of a continuous time framework may improve the estimation of the transition probabilities. However, the time homogeneity assumption, frequently done in economic applications, does not hold, even for short time intervals. Thus, the information provided by migrations alone is not enough to forecast the future behavior of ratings. The stage of the business cycle should be taken into account, and individual characteristics of banks must be considered as well.
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Bibliographic InfoPaper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 003961.
Date of creation: 17 Jul 2007
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- José E. Gómez-González & Nicholas M. Kiefer., 2009. "Evidence of Non-Markovian Behavior in the Process of Bank Rating Migrations," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 46(133), pages 33-50.
- José E. Gómez González & Nicholas M. Kiefer, 2007. "Evidence of non-Markovian behavior in the process of bank rating migrations," BORRADORES DE ECONOMIA 004016, BANCO DE LA REPÚBLICA.
- José E.Gómez González & Nicholas M. Kiefer, . "Evidence of non-Markovian behavior in the process of bank rating migrations," Borradores de Economia 448, Banco de la Republica de Colombia.
- C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-09 (All new papers)
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