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Comparing the accuracy of default predictions in the rating industry for different sets of obligors

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  • Krämer, Walter
  • Neumärker, Simon
Abstract
We generalize the refinement ordering for well calibrated probability forecasts to the case were the debtors under consideration are not necessarily identical. This ordering is consistent with many well known skill scores used in practice. We also add an illustration using default predictions made by the leading rating agencies Moody’s and S&P.

Suggested Citation

  • Krämer, Walter & Neumärker, Simon, 2016. "Comparing the accuracy of default predictions in the rating industry for different sets of obligors," Economics Letters, Elsevier, vol. 145(C), pages 48-51.
    • Handle: RePEc:eee:ecolet:v:145:y:2016:i:c:p:48-51
    DOI: 10.1016/j.econlet.2016.05.021
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    References listed on IDEAS

    as
    1. Walter Krämer, 2006. "Evaluating probability forecasts in terms of refinement and strictly proper scoring rules," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(3), pages 223-226.
    2. Boumparis, Periklis & Milas, Costas & Panagiotidis, Theodore, 2015. "Has the crisis affected the behavior of the rating agencies? Panel evidence from the Eurozone," Economics Letters, Elsevier, vol. 136(C), pages 118-124.
    3. Czarnitzki, Dirk & Kraft, Kornelius, 2004. "Innovation indicators and corporate credit ratings: evidence from German firms," Economics Letters, Elsevier, vol. 82(3), pages 377-384, March.
    4. Lahiri, Kajal & Yang, Liu, 2013. "Forecasting Binary Outcomes," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 1025-1106, Elsevier.
    5. R. Winkler & Javier Muñoz & José Cervera & José Bernardo & Gail Blattenberger & Joseph Kadane & Dennis Lindley & Allan Murphy & Robert Oliver & David Ríos-Insua, 1996. "Scoring rules and the evaluation of probabilities," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 5(1), pages 1-60, June.
    6. Hauck, Achim & Neyer, Ulrike, 2014. "Disagreement between rating agencies and bond opacity: A theoretical perspective," Economics Letters, Elsevier, vol. 123(1), pages 82-85.
    7. G. Elliott & C. Granger & A. Timmermann (ed.), 2013. "Handbook of Economic Forecasting," Handbook of Economic Forecasting, Elsevier, edition 1, volume 2, number 2.
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    More about this item

    Keywords

    Moody’s; S&P; Probability forecasts; Skill scores;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • G2 - Financial Economics - - Financial Institutions and Services

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