Benchmarking Credit Rating Systems

29 Pages Posted: 17 Sep 2006

See all articles by Kurt Hornik

Kurt Hornik

Vienna University of Economics and Business Administration - Department of Statistics and Mathematics

Manuel Lingo

Oesterreichische Nationalbank (OeNB); Vienna University of Economics and Business Administration

Rainer Jankowitsch

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Stefan Pichler

WU - Vienna University of Economics and Business - Department of Finance, Accounting and Statistics; VGSF (Vienna Graduate School of Finance)

Gerhard Winkler

Oesterreichische Nationalbank (OeNB); Vienna University of Economics and Business Administration

Date Written: January 2007

Abstract

The validation of credit rating systems has recently attracted particular interest both from banks and their supervisors as well as from academic research. Whereas the main interest has been focused on backtesting methods, alternative approaches such as benchmarking are of growing importance. Benchmarking methods make use of available multi-rater information, i.e. rating assignments about identical obligors stemming from different rating sources. Employing a unique data set provided by the Austrian central bank with rating information on European corporate obligors by nine major Austrian banks, we conduct a benchmarking analysis based on the framework suggested by Hornik et al. (2005) on both market specific and bank specific levels. It turns out that overall similarity among rating systems is remarkably lower for foreign markets compared to the domestic market. Transition economies and markets with a generally low involvement of Austrian banks show particularly dissimilar results. Differences in the overall similarity of rating systems are partly explained by different performance of some individual rating systems in the domestic and foreign markets.

Keywords: rating validation, benchmarking, rating agreement, rating association, financial market integration, transition economies

JEL Classification: G20, C49

Suggested Citation

Hornik, Kurt and Lingo, Manuel and Jankowitsch, Rainer and Pichler, Stefan and Winkler, Gerhard, Benchmarking Credit Rating Systems (January 2007). Available at SSRN: https://ssrn.com/abstract=930376 or http://dx.doi.org/10.2139/ssrn.930376

Kurt Hornik

Vienna University of Economics and Business Administration - Department of Statistics and Mathematics ( email )

Vienna A-1090, Wien
Austria

Manuel Lingo (Contact Author)

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
1090 Vienna
Austria

Vienna University of Economics and Business Administration

Augasse 2-6
Vienna A-1090
Austria

Rainer Jankowitsch

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
Vienna, Vienna AT1020
Austria
+43 1 31 336 4340 (Phone)
+43 1 310 0580 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Stefan Pichler

WU - Vienna University of Economics and Business - Department of Finance, Accounting and Statistics ( email )

Heiligenstaedter Strasse 46-48
Wien 1190
Austria

VGSF (Vienna Graduate School of Finance) ( email )

Heiligenstaedter Strasse 46-48
Vienna, 1190
Austria

Gerhard Winkler

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
1090 Vienna
Austria

Vienna University of Economics and Business Administration ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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