Qi, Min; Zhang, Xiaofei; Zhao, Xinlei - In: Journal of Banking & Finance 49 (2014) C, pp. 216-227
We conduct a thorough analysis on the role played by the unobserved systematic risk factor in default prediction. We … find that this latent factor outweighs the observed systematic risk factors and can substantially improve the in … systematic risk factor when simulating portfolio credit losses. However, we also find that this factor only marginally improves …