Forecasting Bank Credit Ratings

21 Pages Posted: 15 Feb 2014

See all articles by Periklis Gogas

Periklis Gogas

Democritus University of Thrace - Department of Economics

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace

Anna Agrapetidou

Democritus University of Thrace - Department of Economics

Date Written: February 14, 2014

Abstract

Purpose -- This study presents an empirical model designed to forecast bank credit ratings using only quantitative and publicly available information from their financial statements. For this reason we use the long term ratings provided by Fitch in 2012. Our sample consists of 92 U.S. banks and publicly available information in annual frequency from their financial statements from 2008 to 2011. Methodology -- First, in the effort to select the most informative regressors from a long list of financial variables and ratios we use stepwise least squares and select several alternative sets of variables. Then these sets of variables are used in an ordered probit regression setting to forecast the long term credit ratings. Findings -- Under this scheme, the forecasting accuracy of our best model reaches 83.70% when 9 explanatory variables are used. Originality/value -- The results indicate that bank credit ratings largely rely on historical data making them respond sluggishly and after any financial problems are already known to the public.

Suggested Citation

Gogas, Periklis and Papadimitriou, Theophilos and Agrapetidou, Anna, Forecasting Bank Credit Ratings (February 14, 2014). Available at SSRN: https://ssrn.com/abstract=2395798 or http://dx.doi.org/10.2139/ssrn.2395798

Periklis Gogas (Contact Author)

Democritus University of Thrace - Department of Economics ( email )

Komotini, 69100
Greece

HOME PAGE: http://www.econ.duth.gr/personel/dep/gkogkas/index.en.shtml

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace ( email )

University Campus
Komotini, 69100
Greece

HOME PAGE: http://econ.duth.gr/author/papadimi/

Anna Agrapetidou

Democritus University of Thrace - Department of Economics ( email )

Komotini
Greece

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