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Time series properties of a rating system based on financial ratios

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Author Info
Krüger, Ulrich
Stötzel, Martin
Trück, Stefan

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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.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2005,14.

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp2:4269

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Related research
Keywords: Reduced Form Models Rating Transitions Markov Property Internal Rating Systems Time Homogeneity Matrix Norms

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Find related papers by JEL classification:
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
G20 - Financial Economics - - Financial Institutions and Services - - - General
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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  1. Ongena, Steven & Tümer-Alkan, Günseli & Westernhagen, Natalja von, 2007. "Creditor concentration: an empirical investigation," Discussion Paper Series 2: Banking and Financial Studies 2007,15, Deutsche Bundesbank, Research Centre. [Downloadable!]
  2. Marsch, Katharina & Schmieder, Christian & Forster-van Aerssen, Katrin, 2007. "Banking consolidation and small businessfinance : empirical evidence for Germany," Discussion Paper Series 2: Banking and Financial Studies 2007,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
  3. Memmel, Christoph & Schmieder, Christian & Stein, Ingrid, 2007. "Relationship lending: empirical evidence for Germany," Discussion Paper Series 2: Banking and Financial Studies 2007,14, Deutsche Bundesbank, Research Centre. [Downloadable!]
  4. Klaus Düllmann & Nancy Masschelein, 2006. "Sector Concentration in Loan Portfolios and Economic Capital," Research series 200611-17, National Bank of Belgium. [Downloadable!]
  5. Düllmann, Klaus & Masschelein, Nancy, 2006. "Sector concentration in loan portfolios and economic capital," Discussion Paper Series 2: Banking and Financial Studies 2006,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
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