Evidence of non-Markovian behavior in the process of bank rating migrations



Document title: Evidence of non-Markovian behavior in the process of bank rating migrations
Journal: Cuadernos de economía (Santiago)
Database: CLASE
System number: 000317042
ISSN: 0716-0046
Authors: 1
2
Institutions: 1Banco de la República, Bogotá. Colombia
2Cornell University, Ithaca, Nueva York. Estados Unidos de América
Year:
Season: May
Volumen: 46
Number: 133
Pages: 33-50
Country: Chile
Language: Inglés
Document type: Artículo
Approach: Analítico, descriptivo
English abstract This paper estimates transition matrices for the ratings on financial institutions, using an unusually informative data set. We show that the process of rating migration exhibits significant non-Markovian behavior, in the sense that the transition intensities are affected by macroeconomic and bank-specific 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
Disciplines: Economía
Keyword: Econometría,
Instituciones financieras,
Variables macroeconómicas,
Capitalización,
Bancos,
Matrices de transición,
Modelos econométricos
Full text: Texto completo (Ver PDF)