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Time series properties of a rating system based on financial ratios

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  • Krüger, Ulrich
  • Stötzel, Martin
  • Trück, Stefan

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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Bibliographic Info

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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Cited by:
  1. Ongena, Steven & Tümer-Alkan, Günseli & Westernhagen, Natalja v., 2012. "Creditor concentration: An empirical investigation," European Economic Review, Elsevier, vol. 56(4), pages 830-847.
  2. Andre Güttler & Peter Raupach, 2010. "The Impact of Downward Rating Momentum," Journal of Financial Services Research, Springer, vol. 37(1), pages 1-23, February.
  3. Klaus Düllmann & Nancy Masschelein, 2007. "A Tractable Model to Measure Sector Concentration Risk in Credit Portfolios," Journal of Financial Services Research, Springer, vol. 32(1), pages 55-79, October.
  4. 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.
  5. Schmieder, Christian & Memmel, Christoph & Stein, Ingrid, 2007. "Relationship lending: empirical evidence for Germany," Discussion Paper Series 2: Banking and Financial Studies 2007,14, Deutsche Bundesbank, Research Centre.
  6. Christian Schmieder & Katharina Marsch & Katrin Forster-van Aerssen, 2010. "Does banking consolidation worsen firms’ access to credit? Evidence from the German economy," Small Business Economics, Springer, vol. 35(4), pages 449-465, November.
  7. Güttler, André & Raupach, Peter, 2008. "The impact of downward rating momentum on credit portfolio risk," Discussion Paper Series 2: Banking and Financial Studies 2008,16, Deutsche Bundesbank, Research Centre.
  8. Klaus Düllmann & Nancy Masschelein, 2006. "Sector Concentration in Loan Portfolios and Economic Capital," Working Paper Research 105, National Bank of Belgium.
  9. Masschelein, Nancy & Düllmann, Klaus, 2006. "Sector concentration in loan portfolios and economic capital," Discussion Paper Series 2: Banking and Financial Studies 2006,09, Deutsche Bundesbank, Research Centre.

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