EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONS

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-s...

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Autores principales:	GÓMEZ-GONZÁLEZ,JOSÉ E, KIEFER,NICHOLAS M
Lenguaje:	English
Publicado:	Instituto de Economía, Pontificia Universidad Católica de Chile 2009
Materias:	Financial Institutions Macroeconomic Variables Capitalization Supervision Transition Intensities
Acceso en línea:	http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0717-68212009000100002
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spelling	oai:scielo:S0717-682120090001000022009-08-13EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONSGÓMEZ-GONZÁLEZ,JOSÉ EKIEFER,NICHOLAS M Financial Institutions Macroeconomic Variables Capitalization Supervision Transition Intensities 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.info:eu-repo/semantics/openAccessInstituto de Economía, Pontificia Universidad Católica de ChileCuadernos de economía v.46 n.133 20092009-05-01text/htmlhttp://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0717-68212009000100002en10.4067/S0717-68212009000100002
institution	Scielo Chile
collection	Scielo Chile
language	English
topic	Financial Institutions Macroeconomic Variables Capitalization Supervision Transition Intensities
spellingShingle	Financial Institutions Macroeconomic Variables Capitalization Supervision Transition Intensities GÓMEZ-GONZÁLEZ,JOSÉ E KIEFER,NICHOLAS M EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONS
description	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.
author	GÓMEZ-GONZÁLEZ,JOSÉ E KIEFER,NICHOLAS M
author_facet	GÓMEZ-GONZÁLEZ,JOSÉ E KIEFER,NICHOLAS M
author_sort	GÓMEZ-GONZÁLEZ,JOSÉ E
title	EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONS
title_short	EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONS
title_full	EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONS
title_fullStr	EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONS
title_full_unstemmed	EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONS
title_sort	evidence of non-markovian behavior in the process of bank rating migrations
publisher	Instituto de Economía, Pontificia Universidad Católica de Chile
publishDate	2009
url	http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0717-68212009000100002
work_keys_str_mv	AT gomezgonzalezjosee evidenceofnonmarkovianbehaviorintheprocessofbankratingmigrations AT kiefernicholasm evidenceofnonmarkovianbehaviorintheprocessofbankratingmigrations
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EVIDENCE OF NON-MARKOVIAN BEHAVIOR IN THE PROCESS OF BANK RATING MIGRATIONS

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