Title: Predicting Recurrent Financial Distresses with Autocorrelation Structure: An Empirical Analysis from an Emerging Market
Authors: Hwang, Ruey-Ching
Chung, Huimin
Ku, Jiun-Yi
資訊管理與財務金融系 註:原資管所+財金所
Department of Information Management and Finance
Keywords: Autocorrelation structure;Dynamic logit model;Expanding rolling window approach;Predictive interval;Predicted number of financial distresses;Recurrent financial distresses
Issue Date: 1-Jun-2013
Abstract: The dynamic logit model (DLM) with autocorrelation structure (Liang and Zeger Biometrika 73:13-22, 1986) is proposed as a model for predicting recurrent financial distresses. This model has been applied in many examples to analyze repeated binary data due to its simplicity in computation and formulation. We illustrate the proposed model using three different panel datasets of Taiwan industrial firms. These datasets are based on the well-known predictors in Altman (J Financ 23:589-609, 1968), Campbell et al. (J Financ 62:2899-2939, 2008), and Shumway (J Bus 74:101-124, 2001). To account for the correlations among the observations from the same firm, we consider two different autocorrelation structures: exchangeable and first-order autoregressive (AR1). The prediction models including the DLM with independent structure, the DLM with exchangeable structure, and the DLM with AR1 structure are separately applied to each of these datasets. Using an expanding rolling window approach, the empirical results show that for each of the three datasets, the DLM with AR1 structure yields the most accurate firm-by-firm financial-distress probabilities in out-of-sample analysis among the three models. Thus, it is a useful alternative for studying credit losses in portfolios.
URI: http://dx.doi.org/10.1007/s10693-012-0136-0
http://hdl.handle.net/11536/21805
ISSN: 0920-8550
DOI: 10.1007/s10693-012-0136-0
Journal: JOURNAL OF FINANCIAL SERVICES RESEARCH
Volume: 43
Issue: 3
Begin Page: 321
End Page: 341
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