The predictive accuracy of credit ratings: measurement and statistical inference

Credit ratings are ordinal predictions for the default risk of an obligor. To evaluate the accuracy of such predictions commonly used measures are the Accuracy Ratio or, equivalently, the Area under the ROC curve. The disadvantage of these measures is that they treat default as a binary variable thereby neglecting the timing of the default events and also not using the full information from censored observations. We present an alternative measure that is related to the Accuracy Ratio but does not suffer from these drawbacks. As a second contribution, we study statistical inference for the Accuracy Ratio and the proposed measure in the case of multiple cohorts of obligors with overlapping lifetimes. We derive methods that use more sample information and lead to more powerful tests than alternatives that filter just the independent part of the dataset. All procedures are illustrated in the empirical section using a dataset of S&P Long Term Credit Ratings. --ratings,predictive accuracy,Accuracy Ratio,Harrell's C,overlapping lifetimes

Multi-period credit default prediction with time-varying covariates

In credit default prediction models, the need to deal with time-varying covariates often arises. For instance, in the context of corporate default prediction a typical approach is to estimate a hazard model by regressing the hazard rate on time-varying covariates like balance sheet or stock market variables. If the prediction horizon covers multiple periods, this leads to the problem that the future evolution of these covariates is unknown. Consequently, some authors have proposed a framework that augments the prediction problem by covariate forecasting models. In this paper, we present simple alternatives for multi-period prediction that avoid the burden to specify and estimate a model for the covariate processes. In an application to North American public firms, we show that the proposed models deliver high out-of-sample predictive accuracy. --credit default,multi-period predictions,hazard models,panel data,out-of-sample tests

How do students in enabling programs cope when the paper study materials are no longer readily available?

Students studying enabling programs are now expected to learn from the electronic medium rather than from paper study materials. Most universities have budgeting constraints that impact on the production and provision of the traditional paper study materials. As a result of the Bradley Report, universities are increasing the participation rates in their enabling programs (Bradley, et al., 2008) by accepting new students who have low academic skills and often lack confidence to succeed in higher education. Together with increased student numbers in enabling courses and tighter budgeting constraints, electronic resources are seen by universities as being more cost effective. Many students may be computer literate but do they manage to learn effectively or as well as students who studied using traditional methods

Finite-Size Effects in Lattice QCD with Dynamical Wilson Fermions

As computing resources are limited, choosing the parameters for a full Lattice QCD simulation always amounts to a compromise between the competing objectives of a lattice spacing as small, quarks as light, and a volume as large as possible. Aiming to push unquenched simulations with the Wilson action towards the computationally expensive regime of small quark masses we address the question whether one can possibly save computing time by extrapolating results from small lattices to the infinite volume, prior to the usual chiral and continuum extrapolations. In the present work the systematic volume dependence of simulated pion and nucleon masses is investigated and compared with a long-standing analytic formula by Luescher and with results from Chiral Perturbation Theory. We analyze data from Hybrid Monte Carlo simulations with the standard (unimproved) two-flavor Wilson action at two different lattice spacings of a=0.08fm and 0.13fm. The quark masses considered correspond to approximately 85 and 50% (at the smaller a) and 36% (at the larger a) of the strange quark mass. At each quark mass we study at least three different lattices with L/a=10 to 24 sites in the spatial directions (L=0.85-2.08fm).Comment: 21 pages, 20 figures, REVTeX 4; v2: caption of Fig.7 corrected, one reference adde

Global Excess Liquidity and House Prices - A VAR Analysis for OECD Countries

The belief that house prices are driven by specific regional and institutional variables and not at all by monetary conditions is so entrenched with some market participants and some commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. This paper investigates the relationship between global excess liquidity and asset prices on a global scale:How important is global liquidity? How are asset (especially house) prices and other important macro variables like consumer prices affected by global monetary conditions? This paper analyses the international transmission of monetary shocks with a special focus on the effects of a global monetary aggregate ("global liquidity") on consumer prices and different asset prices.We estimate a variety of VAR models for the global economy using aggregated data that represent the major OECD countries. The impulse responses show that a positive shock to global liquidity leads to permanent increases in the global GDP deflator and in the global house price index, while the latter reaction is even more distinctive. Moreover, we find that there are subsequent spillovers to consumer prices. In contrast, we are not able to find empirical evidence in favour of the hypothesis that the MSCIWorld index as a measure of stock prices significantly reacts to changes in global liquidity.Global liquidity, inflation control, international spillovers, asset prices, VAR analysis