scholarly journals Statistical Surveillance of Structural Breaks in Credit Rating Dynamics

Entropy ◽  
2020 ◽  
Vol 22 (10) ◽  
pp. 1072
Author(s):  
Haipeng Xing ◽  
Ke Wang ◽  
Zhi Li ◽  
Ying Chen
Keyword(s):  
Likelihood Ratio ◽  
Global Economy ◽  
Structural Breaks ◽  
Credit Rating ◽  
Credit Market ◽  
Statistical Process ◽  
Transition Dynamics ◽  
Markovian Models ◽  
Ratio Rule ◽  
Detection Rule

The 2007–2008 financial crisis had severe consequences on the global economy and an intriguing question related to the crisis is whether structural breaks in the credit market can be detected. To address this issue, we chose firms’ credit rating transition dynamics as a proxy of the credit market and discuss how statistical process control tools can be used to surveil structural breaks in firms’ rating transition dynamics. After reviewing some commonly used Markovian models for firms’ rating transition dynamics, we present several surveillance rules for detecting changes in generators of firms’ rating migration matrices, including the likelihood ratio rule, the generalized likelihood ratio rule, the extended Shiryaev’s detection rule, and a Bayesian detection rule for piecewise homogeneous Markovian models. The effectiveness of these rules was analyzed on the basis of Monte Carlo simulations. We also provide a real example that used the surveillance rules to analyze and detect structural breaks in the monthly credit rating migration of U.S. firms from January 1986 to February 2017.

The Impact of the COVID-19 Pandemic on Stock Markets

2020 ◽  
Vol 1 (2) ◽  
pp. 57-70
Author(s):  
Rui Dias ◽  
João Manuel Pereira
Keyword(s):  
Financial Markets ◽  
Global Economy ◽  
Structural Breaks ◽  
Research Question ◽  
Causal Link ◽  
Data Series ◽  
Fluctuation Analysis ◽  
Wald Tests ◽  
The Impact ◽  
Detrended Fluctuation

COVID-19 has had a marked impact on the global economy, resulting in uncertainty, pessimism, and adverse effects on financial markets. In light of this event, this paper aims to test whether the evolution of COVID-19 (confirmed cases and deaths) is responsible for the stock market indices in eight European countries, from December 31, 2019 to July 23, 2020. Two key research questions have been raised to determine this causal link: Does the increase in COVID-19 cases and deaths cause shockwaves in Europe's financial markets? If so, does the presence of long memories cause high levels of arbitration? The results show mostly structural breaks in March 2020. In contrast, the VAR Granger Causality/Block Exogeneity Wald Tests model shows that the COVID-19 data series (confirmed cases and deaths) do not cause shocks in Europe's financial markets, which in return does not validate the first research question. The results of the exponents detrended fluctuation analysis (DFA) shows significant long memories ranging between 0.61-0.73.

scholarly journals What Affects the Relationships between Oil and Industrial Sector? Case of Eurozone

2017 ◽  
Vol 9 (9) ◽  
pp. 52
Author(s):  
Melik Kamisli ◽  
Serap Kamisli ◽  
Fatih Temizel ◽  
Ethem Esen
Keyword(s):  
Structural Breaks ◽  
Credit Rating ◽  
Debt Crisis ◽  
Strong Relationship ◽  
Industrial Sector ◽  
Oil Price ◽  
Production Costs ◽  
Cost Item ◽  
Economic Developments ◽  
Sector Returns

Oil, which is one of the fundamental energy sources, is an important cost item especially for industrial sector. Increases in oil prices decrease the profits of the firms by causing increase in the production costs. For this reason, it is claimed that there is a strong relationship between oil price and industrial sector profitability. On the other hand, oil is an alternative investment vehicle that can be included to the portfolio. Therefore, in this study the relationships between oil price and industrial sector returns of European countries are analyzed with Maki (2012) cointegration test under multiple structural breaks, on the basis of European Debt Crisis. The results show that announcements of credit rating agencies, elections, resignations, announcements of European Central Bank and IMF, recovery packages and economic developments cause structural breaks in relationships. Results also indicate that there is no cointegration between oil price and industrial sector returns of Austria, Belgium and Holland.

US rating agency reform to rest on enforcement

2016 ◽  
Keyword(s):  
Business Model ◽  
Global Economy ◽  
Annual Report ◽  
Credit Rating ◽  
Credit Ratings ◽  
Securities And Exchange Commission ◽  
Political Support ◽  
Political Debate ◽  
Content Type ◽  
Rating Agencies

Subject The latest annual report of the Securities and Exchange Commission (SEC) on credit ratings agencies (CRAs). Significance The latest annual report of the Securities and Exchange Commission (SEC) on credit rating agencies (CRAs) suggests that practices that contributed to the 2007-08 financial crisis persist, and that the prevailing CRA business model continues to incentivise high credit ratings rather than accurate ones. The underlying conflict of interest inherent in the prevailing CRA business model is well-recognised, but there is a lack of broad political support to address the problem. Impacts The report will increase pressure on the SEC to strengthen its CRA enforcement policy. The report is shaping the terms of political debate and providing fodder, especially for Democratic presidential candidate Bernie Sanders. Renewed financial market turbulence and strains in the global economy could provide fresh tests for CRAs.

Credit rating dynamics in the presence of unknown structural breaks

2012 ◽  
Vol 36 (1) ◽  
pp. 78-89 ◽  
Author(s):  
Haipeng Xing ◽  
Ning Sun ◽  
Ying Chen
Keyword(s):  
Structural Breaks ◽  
Credit Rating

scholarly journals U.S. Sub-Prime Crisis: Origin and Causes

2020 ◽  
Vol 3 (1) ◽  
pp. 24-33
Author(s):  
Sangeeta Sangeeta ◽  
Vinay Chamoli
Keyword(s):  
Global Economy ◽  
Credit Rating ◽  
Home Country ◽  
Mortgage Lending ◽  
Subprime Crisis ◽  
Subprime Mortgage ◽  
Rating Agencies ◽  
Crisis Events ◽  
Mortgage Backed Securities ◽  
Boom And Bust

The purpose of this paper is to explain the boom and bust of the housing market in the U.S. and how the sub-prime mortgages gave birth to new securitized products in the global economy. The majority of the researches conducted previously to explore the reason for the sub-prime crisis and its impact on the volatility on the stock market of the home country (U.S.) and the other developing countries. This paper also contributes to the literature about causes, timeline, and major crisis events during the crisis period. The literature on the Subprime crisis revealed many causes of the Sub-prime crisis. These were Imprudent Mortgage Lending, Housing Bubble, Global Imbalances, Securitization, Lack of Transparency and Accountability in Mortgage Finance, Rating Agencies- The credit rating agencies gave AAA ratings to numerous issues of subprime mortgage-backed securities, many of which were subsequently downgraded to junk status. Deregulatory Legislation, Government-Mandated Sub-prime Lending, Complexity of certain financial instruments, Failure of Risk Management Systems, Excessive Leverage and Relaxed Regulation of Leverage were the most discussed reasons of Subprime Crisis.

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