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Additive Intensity Regression Models in Corporate Default Analysis

Lando, D., Medhat, M., Nielsen, M. S. and Nielsen, S. F. (2013). Additive Intensity Regression Models in Corporate Default Analysis. Journal of Financial Econometrics, 11(3), pp. 443-485. doi: 10.1093/jjfinec/nbs018

Abstract

We consider additive intensity (Aalen) models as an alternative to the multiplicative intensity (Cox) models for analyzing the default risk of a sample of rated, nonfinancial U.S. firms. The setting allows for estimating and testing the significance of time-varying effects. We use a variety of model checking techniques to identify misspecifications. In our final model, we find evidence of time-variation in the effects of distance-to-default and short-to-long term debt. Also we identify interactions between distance-to-default and other covariates, and the quick ratio covariate is significant. None of our macroeconomic covariates are significant.

Publication Type: Article
Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in Journal of Financial Econometrics following peer review. The version of record Lando, D., Medhat, M., Nielsen, M. S. & Nielsen, S. F. (2013). Additive Intensity Regression Models in Corporate Default Analysis. Journal of Financial Econometrics, 11(3), pp. 443-485. is available online at: https://doi.org/10.1093/jjfinec/nbs018
Publisher Keywords: default risk modeling, Aalen's additive regression model, martingale residual processes
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/17834
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