Statistical classification models applied to common stock analysis

The application of statistical classification techniques to various aspects of equity financing and returns performance has been an attractive and fairly prolific area of research in the last 10–15 yrs. The various aspects of equity analysis relevant to classification techniques are more diverse than fixed income analysis and, until recently, presented more interesting empirical as well as theoretical challenges.The purpose of this paper is to review and comment upon numerous classification studies related to several aspects of common stock analysis, and, in so doing, to provide a clear picture of the variety of application areas amenable to statistical classification techniques. These areas include (1) common stock investment categories; (2) price-earnings and return-risk equity classification; (3) information content and return performance; and (4) capital structure questions.     

Predicting performance in the savings and loan association industry

The purpose of this study is to develop a system for identifying serious financial problems in savings and loan associations. A ‘serious problem S&L’ is defined as one for which the Federal Savings & Loan Insurance Corporation provides financial assistance or where the S&L is supervisorly merged with a sounder institution. The technique used is to compare operating characteristics of problem S&L's with those of S&L's in various degrees of good standing. The results of the study show that a 12-variable econometric system is both accurate and practical for at least three semi-annual periods preceding the serious problem data. The system involves (1) quadratic discriminant analysis, and (2) a composite S&L rating based on three two-group discriminant models.     

An interview with Stuart Altman and Uwe E. Reinhardt

In this second of a two-part interview (conducted in January), Dr. Stuart Altman and Professor Uwe Reinhardt continue to share their candid opinions on long-term care, the President's FY91 budget, and the influential commissions (the Prospective Payment Assessment Commission [ProPAC] and the Physician Payment Review Commission [PPRC]) upon which they serve.     

A Race for Long Horizon Bankruptcy Prediction

ABSTRACT

This study compares the accuracy and efficiency of five different estimation methods for predicting financial distress of small and medium-sized enterprises. We apply different methods for a large set of financial and non-financial variables, using filter and wrapper selection, to predict bankruptcy up to 10 years before the event in an open, European economy. Our findings show that logistic regression and neural networks are superior to other approaches. We document how the cost-return ratio considerably affects the location of optimal cut-off points and attainable profit in credit decisions. Once a loan provider selects a particular prediction model, an effort should be made to find the optimal cut-off score to maximize the efficiency of the technique. Indeed, this often involves determining several cut-off levels where the portfolio of products and services exhibits different cost-return characteristics.     

A HISTORICAL PERSPECTIVE ON INDIGENOUS SOCIOECONOMIC OUTCOMES IN AUSTRALIA, 1971–2001

Current debate in Indigenous affairs in Australia often involves the assertion that the last 30 years has been a period of policy failure. This article examines trends across a number of socioeconomic outcomes for Indigenous Australians from the 1967 referendum to the present, using census data. Overall, there has been steady, although not spectacular improvement in outcomes over time. These improvements are especially marked for education, which was coming from an exceptionally low base. This finding is somewhat at odds with the common perception of the 'failure' of Indigenous policy.     

Why Unemployment Insurance Might Not Only Be Good for the Soul,It Might Also Be Good for the Economy

Contrary to the conventional view that unemployment insurance serves to directly increase the rate of unemployment as well as reducing an economy's competitiveness by increasing the market wage of labor, the argument presented in this paper is that this worldview critically depends on unrealistic behavioral assumptions. A more realistic modeling suggests that unemployment rates need not rise and competitiveness need not deteriorate with the introduction of or improvements in unemployment insurance, which can also induce increases in economic efficiency. These analytical predictions are consistent with the empirics of unemployment insurance. Unemployment insurance can therefore protect the unemployed without damaging the economy.