Rating change probabilities: An empirical analysis of sovereign ratings

Bachelor Thesis , 2012 , 48 Pages , Grade: 1,0

Business economics - Banking, Stock Exchanges, Insurance, Accounting

In my Bachelor thesis I analyze the determinants of rating changes and the variables'marginal effects on rating change probabilities. Based on my results, I present transition matrices by computing transition probabilities. Furthermore, I analyze subsamples of my data set, conditional on the business cycle and the economic strength of a country, by using interaction effects. I thereby verify whether or how the transition matrices change by including interaction effects.
I apply a latent variable approach, using an ordered probit model, to calculate the effects of different variables on the probabilities of rating changes.

Contents

List of Figures

List of Tables

1 Introduction

2 Previous Literature

3 Agencies’ rating assessment
3.1 Rating Definitions and Methodology
3.2 Rating Transition Matrices

4 Ordered Probit Model
4.1 Mathematical Framework
4.2 Model parameters
4.3 Marginal effects

5 Data
5.1 Data summary
5.2 Independent Variables and direction of change
5.3 Choice of Variables

6 Estimation
6.1 Simple Ordered Probit Model
6.2 Random Effects Ordered Probit Model
6.3 Marginal Effects

7 Predicted Probabilities and Transition matrices
7.1 Predicted Probabilities
7.2 Unconditional Transition Matrices
7.3 Conditional Transition Matrices

8 Conclusion

Appendix

References

• College: University of Mannheim
• Grade: 1,0
• Author: Alex Bergen (Author)
• Publication Year: 2012
• Pages: 48
• Catalog Number: V231459
• ISBN (eBook): 9783656470809
• ISBN (Book): 9783656470823
• Language: English
• Tags: Economics, Rating, Ordered Probit Model, Volkswirtschaftslehre, VWL, Finance, Econometrics, Statistik, Markov Chain, Transition Matrix, Ökonometrie, Banking