Location of Repository

Measures of Predictive Success for Rating Functions

By Sebastian Ostrowski and Peter Reichling

Abstract

Aim of our paper is to develop an adequate measure of predictive success and accuracy of rating functions. At first, we show that the common measures of rating accuracy, i.e. area under curve and accuracy ratio, respectively, lack of informative value of single rating classes. Selten (1991) builds up an axiomatic framework for measures of predictive success. Therefore, we introduce a measure for rating functions that fulfills the axioms proposed by Selten (1991). Furthermore, an empirical investigation analyzes predictive power and accuracy of Standard & Poor's and Moody's ratings, and compares the rankings according to area under curve and our measure.Accuracy Measure, Rating Functions, Predictive Success, Discriminative Power

OAI identifier:

Suggested articles

Preview

Citations

  1. (1983). Comparison of Two Theories for Characteristic Function Experiments,
  2. (1998). Credit Risk Measurement: Developments over the Last 20 Years',
  3. (2002). Default and Recovery Rates of Corporate Bond Issuers', Special Comment .
  4. (2009). Extending the Basel II Approach to Estimate Capital Requirements for Equity Investments',
  5. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy',
  6. (2006). Mapping of Moody's U.S. Municipal Bond Rating Scale to Moody's Corporate Rating Scale and Assignment of Corporate Equivalent Ratings to Municipal Obligations', Special Comment .
  7. (2003). Measuring the Discriminative Power of Rating Systems'. Deutsche Bundesbank, Working Paper.
  8. (1999). Performance Measures for Credit Risk Models', Moody's Risk Management Services .
  9. (1991). Properties of a Measure of Predictive Success',
  10. (2002). Ratings Performance 2001', Special Report . 19 Otto von Guericke University Magdeburg Faculty
  11. (1975). The Area above the Ordinal Dominance Graph and the Area below the Receiver Operating Characteristic Graph',
  12. (1977). ZETA Analysis: A New Model to Identify Bankruptcy Risk of Corporations',

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.