Multivariate Ordinal Regression Models: An Analysis of Corporate Credit Ratings

Rainer Hirk, Kurt Hornik, Laura Vana Gür

Publikation: Working/Discussion PaperWU Working Paper

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Abstract

Correlated ordinal data typically arise from multiple measurements on a collection of subjects. Motivated by an application in credit risk, where multiple credit rating agencies assess the creditworthiness of a firm on an ordinal scale, we consider multivariate ordinal models with a latent variable specification and correlated error terms. Two different link functions are employed, by assuming a multivariate normal and a multivariate logistic distribution for the latent variables underlying the ordinal outcomes. Composite likelihood methods, more specifically the pairwise and tripletwise likelihood approach, are applied for estimating the model parameters. We investigate how sensitive the pairwise likelihood estimates are to the number of subjects and to the presence of observations missing completely at random, and find that these estimates are robust for both link functions and reasonable sample size. The empirical application consists of an analysis of corporate credit ratings from the big three credit rating agencies (Standard & Poor's, Moody's and Fitch). Firm-level and stock price data for publicly traded US companies as well as an incomplete panel of issuer credit ratings are collected and analyzed to illustrate the proposed framework.
OriginalspracheEnglisch
PublikationsstatusVeröffentlicht - 2017

Publikationsreihe

NameResearch Report Series / Department of Statistics and Mathematics
Nr.132

Österreichische Systematik der Wissenschaftszweige (ÖFOS)

  • 502009 Finanzwirtschaft
  • 101018 Statistik

WU Working Paper Reihe

  • Research Report Series / Department of Statistics and Mathematics

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