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


Serie: 
Borradores de economía
Número: 
448
Julio
2007
Autor o Editor: 
Jose Eduardo Gomez G.
Nicholas Kiefer M.
Editorial: 
Banco de la República
Clasificación JEL: 

 
This paper estimates transition matrices for the ratings on financial insti-tutions, 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 spe- cific 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.
 
La serie Borradores de Economía es una publicación de la Subgerencia de Estudios Económicos del Banco de la República. Los trabajos son de carácter provisional, las opiniones y posibles errores son responsabilidad exclusiva del autor y sus contenidos no comprometen al Banco de la República ni a su Junta Directiva.

Categoría: 
Documentos en elaboración

Contenido disponible en / Available in:

  • Español
  • English

-