Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-15T06:47:38.337Z Has data issue: false hasContentIssue false
  • English
  • Français

On the Financial Applications of Discriminant Analysis

Published online by Cambridge University Press:  19 October 2009

O. Maurice Joy  and
John O. Tollefson
Get access Rights & Permissions [Opens in a new window]

Extract

In recent years the application of discriminant analysis to two-category (dichotomous) classification problems in empirical financial research has substantially increased. However, these studies have given relatively little attention to design and interpretation difficulties associated with discriminant analysis. Consequently, the conclusions and generalizations that can be drawn from such studies are frequently tenuous and questionable. This paper's purpose is to discuss the methodology of discriminant analysis. While the paper is oriented toward financial applications of discriminant analysis, our discussion is not peculiar to finance. Furthermore, many of the methodological issues we address are relevant to the general problem of developing and testing dichotomous classification models and arise whether model developing is by discriminant analysis or some other method.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 5 , December 1975 , pp. 723 - 739
Copyright
Copyright © School of Business Administration, University of Washington 1975

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, E. I. “Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy.” Journal of Finance (September 1968), pp. 589–609.CrossRefGoogle Scholar
[2]Altman, E. I. “A Reply.” Journal of Finance (December 1970), pp. 1169–1172.Google Scholar
[3]Anderson, T. W.An Introduction to Multivariate Statistical Analysis. New York: John Wiley and Sons, Inc. (1958).Google Scholar
[4]Beaver, W. H. “Financial Ratios as Predictors of Failure.” Empirical Research in Accounting: Selected Studies, 1966. Supplement to Vol. 4, Journal of Accounting Research, pp. 71–111.CrossRefGoogle Scholar
[5]Beaver, W. H. “Professor Beaver's Reply to Professor Neter.” Empirical Research in Accounting: Selected Studies, 1966. Supplement to Vol. 4, Journal of Accounting Research, pp. 123–127.Google Scholar
[6]Dake, J. L. “Comment: An Empirical Test of Financial Ratio Analysis.” Journal of Financial and Quantitative Analysis (March 1972), pp. 1495–1497.CrossRefGoogle Scholar
[7]Edmister, R. O. “An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction.” Journal of Financial and Quantitative Analysis (March 1972), pp. 1477–1493.CrossRefGoogle Scholar
[8]Frank, R. E.; Massy, W. F.; and Morrison, D. G.. “Bias in Multiple Discriminant Analysis.” Journal of Marketing Research (August 1965), pp. 250–258.CrossRefGoogle Scholar
[9]Johnson, C. G. “Ration Analysis and the Prediction of Firm Failure.” Journal of Finance (December 1970), pp. 1166–1168.CrossRefGoogle Scholar
[10]McCall, A., and Eisenbeis, R.. “Some Effects of Affiliations among Mutual Savings and Commercial Banks.” Journal of Finance (September 1972), pp. 865–877.Google Scholar
[11]Meehl, P. E., and Rosen, A.. “Antecedent Probability and the Efficiency of Psychometric Signs, Patterns or Cutting Scoze.” Psychological Bulletin, Vol. 52, No. 3 (1955), pp. 194–216.CrossRefGoogle ScholarPubMed
[12]Morrison, D. F.Multivariate Statistical Methods. New York: McGraw-Hill, Inc. (1967).Google Scholar
[13]Morrison, D. G. “On the Interpretation of Discriminant Analysis.” Journal of Marketing Research (May 1969), pp. 156–163.CrossRefGoogle Scholar
[14]Mosteller, F., and Wallace, D. F.. “Inference in an Authorship Problem.” Journal of the American Statistical Association (June 1963), pp. 275–309.Google Scholar
[15]Neter, J. “Discussion of Financial Ratios as Predictors of Failure.” Empirical Research in Accounting: Selected Studies, 1966. Supplement to Vol. 4, Journal of Accounting Research, pp. 112–118.CrossRefGoogle Scholar
[16]Pinches, G. E., and Mingo, K. A.. “A Multivariate Analysis of Industrial Bond Ratings.” Journal of Finance (March 1973), pp. 1–18.CrossRefGoogle Scholar
[17]Rao, C. R.Advanced Statistical Methods in Biometric Research. New York: John Wiley and Sons, Inc. (1952).Google Scholar
[18]Williams, W. H., and Goodman, M. L.. “A Statistical Grouping of Corporations by Their Financial Characteristics.” Journal of Financial and Quantitative Analysis (September 1971), pp. 1095–1104.CrossRefGoogle Scholar