An application of the cox proportional hazards model to bank failure

William R. Lane, Stephen Warwick Looney, James W. Wansley

Research output: Contribution to journalArticle

214 Citations (Scopus)

Abstract

The purpose of this study is to present the Cox proportional hazards model and to apply this model to the prediction of bank failures. The Cox model, which has been used extensively in biomedical applications, has not been previously employed in the finance literature. The principal advantage of the Cox model over other classification techniques is that it models the expected time to failure. Results of the study indicate that total classification accuracy of the Cox model is similar to that of discriminant analysis, although the Cox model produces somewhat lower type I errors. In a comparison of actual and predicted times to failure, the Cox model tends to identify bankruptcies prior to the actual failure date.

Original languageEnglish (US)
Pages (from-to)511-531
Number of pages21
JournalJournal of Banking and Finance
Volume10
Issue number4
DOIs
StatePublished - Jan 1 1986
Externally publishedYes

Fingerprint

Cox model
Cox proportional hazards model
Bank failure
Type I error
Finance
Prediction
Discriminant analysis

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

An application of the cox proportional hazards model to bank failure. / Lane, William R.; Looney, Stephen Warwick; Wansley, James W.

In: Journal of Banking and Finance, Vol. 10, No. 4, 01.01.1986, p. 511-531.

Research output: Contribution to journalArticle

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