Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-15T09:02:18.471Z Has data issue: false hasContentIssue false
  • English
  • Français

Financial Applications of Discriminant Analysis: A Clarification

Published online by Cambridge University Press:  06 April 2009

Edward I. Altman  and
Robert A. Eisenbeis
Get access Rights & Permissions [Opens in a new window]

Extract

In a recent article in this Journal Joy and Tollefson [10] (hereafter J&T) critically analyzed discriminant analysis and its application to bankruptcy analysis. The authors make several interesting points and provide a useful discussion of the application of this statistical technique in finance. There are, however, three aspects of their presentation which need further elaboration. These relate to their discussions of (1) the difference between the stability of the discriminant model and its predictive ability, (2) the alternative methods of making inferences about the relative discriminatory power of variables, and (3) the reference statistics to use in assessing classification efficiency. In commenting on these points we will make use of the data from the Altman [1] study as did J&T.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 1 , March 1978 , pp. 185 - 195
Copyright
Copyright © School of Business Administration, University of Washington 1978

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]; Altman, Edward I. “Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy.” Journal of Finance, Vol. 23, No. 4 (09 1968), pp. 589–609.CrossRefGoogle Scholar
[2]Altman, Edward I. “Some Estimates of the Cost of Lending Errors for Commercial Banks.” Journal of Commercial Bank Lending (10 1977).Google Scholar
[3]Altman, Edward I.; Haldeman, Robert; and Narayaman, P.. “ZETA Analysis, A New Model for Identifying Bankruptcy Risk.” Journal of Banking and Finance, Vol. 1, No. 1 (06 1977).CrossRefGoogle Scholar
[4]Anderson, T. W.An Introduction to Multivariate Statistical Analysis. New York: John Wiley and Sons (1975).Google Scholar
[5]Cooley, William W., and Lohnes, Paul R.. Multivariate Procedures for the Behavioral Sciences. New York: John Wiley and Sons (1962).Google Scholar
[6]Cooley, William W., and Lohnes, Paul R.. Multivariate Data Analysis. New York: John Wiley and Sons (1971).Google Scholar
[7]Eisenbeis, Robert A. “Pitfalls in the Application of Discriminant Analysis in Business, Finance, and Economics.” FDIC Executive Summary No. 75–6. Journal of Finance (06 1977).Google Scholar
[8]Eisenbeis, Robert A., and Avery, Robert B.. Discriminant Analysis and Classification Procedures: Theory and Applications. Lexington, Mass.: D.C. Heath and Co. (1972).Google Scholar
[9]Eisenbeis, Robert A.; Gilbert, Gary G.; and Avery, Robert B.. “Investigating the Relative Importance of Individual Variables and Variable Subsets in Discriminant Analysis.” Communication in Statistics (09 1973).CrossRefGoogle Scholar
[10]Maurice, Joy O., and Tollefson, John O.. “On the Financial Applications of Discriminant Analysis.” Journal of Financial and Quantitative Analysis (12 1975).Google Scholar
[11]Kshirsagar, Anant M.Multivariate Analysis. New York: Marchel Dekker, Inc. (1972).Google Scholar
[12]Lachenbruch, Peter A.Discriminant Analysis. New York: Hafner Press (1972).Google Scholar
[13]Lachenbruch, Peter A., and Mickey, M. R.. ‘Estimation of Error Rates in Discriminant Analysis.” Technometrics, Vol. 10, No. 1 (02 1968).CrossRefGoogle Scholar
[14]Mosteller, F., and Wallace, D. F.. “Inference in the Authorship Problem.” Journal of the American Statistical Association (06 1963).CrossRefGoogle Scholar