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Combining Bond Rating Forecasts Using Logit

Author

Listed:
  • Kamstra, Mark
  • Kennedy, Peter
  • Suan, Teck-Kin

Abstract

Companies sometimes use statistical analysis to anticipate their bond ratings or a change in the rating. However, different statistical models can yield different ratings forecasts, and there is no clear rule for which model is preferable. We use several forecasting methods to predict bond ratings in the transportation and industrial sectors listed by Moody's bond rating service. A variant of the ordered-logit regression-combining method of Kamstra and Kennedy 1998 yields statistically significant, quantitatively meaningful improvements over its competitors, with very little computational cost. Copyright 2001 by MIT Press.

Suggested Citation

  • Kamstra, Mark & Kennedy, Peter & Suan, Teck-Kin, 2001. "Combining Bond Rating Forecasts Using Logit," The Financial Review, Eastern Finance Association, vol. 36(2), pages 75-96, May.
    • Handle: RePEc:bla:finrev:v:36:y:2001:i:2:p:75-96
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    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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