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Title: Understanding and predicting bank rating transitions using optimal survival analysis models
Authors: Louis, P.
Van Laere, E. 
Baesens, B.
Keywords: Prediction accuracy
Rating transitions
Rating-specific and macro-economic covariates
Survival analysis
Issue Date: Jun-2013
Citation: Louis, P., Van Laere, E., Baesens, B. (2013-06). Understanding and predicting bank rating transitions using optimal survival analysis models. Economics Letters 119 (3) : 280-283. ScholarBank@NUS Repository.
Abstract: In the aftermath of the financial crisis, this study investigates which underlying determinants cause bank rating transitions. We develop survival analysis models to explain credit transition hazards using macroeconomic factors and the rating history. We find that there exists a significant dependence of rating upgrade or rating downgrade transition hazards on rating-specific covariates and macro-economic covariates. Our results confirm the momentum effect, meaning that a financial institution that has been recently upgraded/downgraded has a higher chance of being upgraded/downgraded again. The predictive performance of the developed models turns out to be satisfactory. © 2013 Elsevier B.V.
Source Title: Economics Letters
ISSN: 01651765
DOI: 10.1016/j.econlet.2013.02.033
Appears in Collections:Staff Publications

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