On Comparing the Accuracy of Default Predictions in the Rating Industry

28 Pages Posted: 8 Feb 2008

See all articles by Walter Kraemer

Walter Kraemer

University of Dortmund - Department of Statistics; CESifo (Center for Economic Studies and Ifo Institute)

Andre Guettler

University of Ulm - Department of Mathematics and Economics; Halle Institute for Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: January 2008

Abstract

We consider 1927 borrowers from 54 countries who had a credit rating by both Moody's and S&P at the end of 1998, and their subsequent default history up to the end of 2002. Viewing bond ratings as predicted probabilities of default, we consider partial orderings among competing probability forecasters and show that Moody's and S&P cannot be ordered according to any of these. Therefore, the relative performance of the agencies depends crucially on the way in which probability predictions are compared.

Keywords: credit rating, probability forecasts, calibration

JEL Classification: C40, C53

Suggested Citation

Kraemer, Walter and Guettler, Andre, On Comparing the Accuracy of Default Predictions in the Rating Industry (January 2008). CESifo Working Paper Series No. 2202, Available at SSRN: https://ssrn.com/abstract=1088644

Walter Kraemer (Contact Author)

University of Dortmund - Department of Statistics ( email )

D-44221 Dortmund
Germany
0231 755-3125 (Phone)
0231 755-5284 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Andre Guettler

University of Ulm - Department of Mathematics and Economics ( email )

Helmholzstrasse
Ulm, D-89081
Germany

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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