Forecasting Bank Credit Ratings
AbstractPurpose-This study presents an empirical model designed to forecast bank credit ratings. For this reason we use the long term ratings provided by Fitch in 2012. Our sample consists of 92 U.S. banks and publicly available information from their financial statements from 2008 to 2011. Methodology -First, in the effort to select the most informative regressors from a long list of financial variables and ratios we use stepwise least squares and select several alternative sets of variables. Then these sets of variables are used in an ordered probit regression setting to forecast the long term credit ratings. Findings-Under this scheme, the forecasting accuracy of our best model reaches 83.70% when 9 explanatory variables are used. Originality/value- The results indicate that bank credit ratings largely rely on historical data making them respond sluggishly and after any financial problems were already known to the public.
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 60_13.
Date of creation: Nov 2013
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Other versions of this item:
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
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