Bank risk is not directly observable, so empirical research relies on indirect measures. We evaluate how well Z-score, the widely used accounting-based measure of bank distance to default, can predict bank failure. Using the U.S. commercial banks’ data from 2004 to 2012, we find that on average, Z-score can predict 76% of bank failure, and additional set of other bank- and macro-level variables do not increase this predictability level. We also find that the prediction power of Z-score to predict bank default remains stable within the three-year forward window.

Chiaramonte, L., Liu, F. H., Poli, F., Zhou, M., How Accurately Can Z-score Predict Bank Failure?, <<FINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS>>, 2016; 25 (5): 333-360. [doi:10.1111/fmii.12077] [http://hdl.handle.net/10807/90590]

How Accurately Can Z-score Predict Bank Failure?

Chiaramonte, Laura
Primo
;
Poli, Federica
Penultimo
;
2016

Abstract

Bank risk is not directly observable, so empirical research relies on indirect measures. We evaluate how well Z-score, the widely used accounting-based measure of bank distance to default, can predict bank failure. Using the U.S. commercial banks’ data from 2004 to 2012, we find that on average, Z-score can predict 76% of bank failure, and additional set of other bank- and macro-level variables do not increase this predictability level. We also find that the prediction power of Z-score to predict bank default remains stable within the three-year forward window.
Inglese
http://onlinelibrary.wiley.com/doi/10.1111/fmii.2016.25.issue-5/issuetoc
Chiaramonte, L., Liu, F. H., Poli, F., Zhou, M., How Accurately Can Z-score Predict Bank Failure?, <>, 2016; 25 (5): 333-360. [doi:10.1111/fmii.12077] [http://hdl.handle.net/10807/90590]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/90590
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