RT Journal Article
SR Electronic
T1 Testing for Rating Consistency in Annual Default Rates
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 36
OP 51
DO 10.3905/jfi.2001.319296
VO 11
IS 2
A1 Richard Cantor
A1 Eric Falkenstein
YR 2001
UL https://pm-research.com/content/11/2/36.abstract
AB We examine issues in testing whether default rates by credit rating categories are consistent across sectors or consistent over time. Our main findings are that sector and macroeconomic shocks inflate the sample standard deviations, compared to using a simple binomial default probability, and we provide a closed form solution that addresses this problem. We apply these results to two well-known cases: testing rating consistency across regions (U.S. versus non-U.S. companies) and across industries (banks versus nonbanks).