Quotation Hornik, Kurt, Jankowitsch, Rainer, Lingo, Manuel, Pichler, Stefan, Winkler, Gerhard. 2007. Validation of credit rating systems using multi-rater information. Journal of Credit Risk 3 (4): 1-27.




We suggest a new framework for the use of multi-rater information in the validation of credit rating systems, applicable in any validation process where rating information from different sources is available. As our validation framework does not rely on historical default information it appears to be particularly useful in situations where such information is inaccessible. We focus on the degree of similarity or - more generally - proximity of rating outcomes stemming from different sources and show that it is important to analyze three major aspects of proximity: agreement, association, and rating bias. We suggest using a weighted version of Cohen's k to measure the agreement between two rating systems and we introduce a new measure for rating bias. In contrast to the existing literature we suggest x as a measure of association which is based on the Kemeny-Snell metric and, opposed to other measures, is consistent with a set of basic axioms and should therefore be used in the context of multi-rater information. We provide an illustrative empirical example using rating information stemming from the Austrian Credit Register on partially overlapping sets of customers of 27 banks. Using a multi-dimensional scaling technique in connection with a minimal spanning tree we show that it is possible to consistently detect "outliers", i.e., banks with a low degree of similarity to other banks. The results indicate that banks which are less diversified across the size of their loans are more likely to be outliers than others.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Credit Risk
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, WH-B
Language English
Title Validation of credit rating systems using multi-rater information
Volume 3
Number 4
Year 2007
Page from 1
Page to 27
Reviewed? Y
URL http://www.fam.tuwien.ac.at/events/wwtf2006/pichler.pdf


Hornik, Kurt (Details)
Jankowitsch, Rainer (Details)
Lingo, Manuel (Details)
Pichler, Stefan (Details)
Winkler, Gerhard (Details)
Institute for Banking and Finance IN (Former organization)
Institute for Statistics and Mathematics IN (Details)
Research Institute for Computational Methods FI (Details)
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