A hybrid information approach to predict corporate credit risk |
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| Authors: | Di Bu Simone Kelly Yin Liao Qing Zhou |
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| Institution: | 1. Macquarie University, Sydney, New South Wales, Australia;2. Department of Finance, Business School, Bond University, Robina, Queensland, Australia;3. School of Economics, Business School, Queensland University of Technology, Brisbane, Queensland, Australia;4. School of Management, Xi’an Jiaotong University, Xi’an, China |
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| Abstract: | This study proposes a hybrid information approach to predict corporate credit risk. In contrast to the previous literature that debates which credit risk model is the best, we pool information from a diverse set of structural and reduced‐form models to produce a model combination based on credit risk prediction. Compared with each single model, the pooled strategies yield consistently lower average risk prediction errors over time. We also find that while the reduced‐form models contribute more in the pooled strategies for speculative‐grade names and longer maturities, the structural models have higher weights for shorter maturities and investment grade names. |
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| Keywords: | bond spread corporate credit risk model combination reduced‐form model structural model |
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