Rating Momentum: Difference between revisions
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Latest revision as of 18:56, 21 December 2020
Definition
Rating Momentum (also Credit Rating Momentum) denotes an empirical phenomenon / potential weakness of a Credit Rating System, whereby the current rating assigned to a Borrower does not fully capture the likelihood of transitions to other states.
In other words the history of rating changes exhibits some persistence and a credit rating move in one direction is more likely to continue in that direction.
Issues and Challenges
- Rating momentum complicates the interpretation of credit ratings as it implies an identical rating for two different borrowers may imply different likely risk profiles.