Previous research claims that industry-relative financial ratios are more stable than unadjusted ratios. Yet, most bankruptcy studies continue to use unadjusted financial ratios to develop bankruptcy-prediction models. In re-examining whether industry-relative ratios are actually more stable, we...

Early-warning models most commonly optimize signaling thresholds on crisis probabilities. The expost threshold optimization is based upon a loss function accounting for preferences between forecast errors, but comes with two crucial drawbacks: unstable thresholds in recursive estimations and an...

We conduct a pseudo real-time analysis of the existence and severity of speculative bubbles in eleven US sectors over the period 1973-2015. Based on the real-time bubble signals, a trading strategy is constructed which switches funds between the market index and those industry sectors that...

We present a factor augmented forecasting model for assessing the financial vulnerability in Korea. Dynamic factor models often extract latent common factors from a large panel of time series data via the method of the principal components (PC). Instead, we employ the partial least squares (PLS)...

This study develops a corporate bankruptcy classification model from a sample of 258 bankrupt and non-bankrupt companies, covering the period 1986-2008. Instead of depending on traditional ratios, it uses a simple exponential function-based algorithm to improve the stability of financial data....

In this paper, we investigate the dynamic link between recessions and stock market liquidity by examining the predictive content of illiquidity for US recessions. After controlling for other commonly featured recession predictors such as term spreads and credit spreads, we find that the...

We present further encouraging evidence for the Critical Exponent Earthquake Crisis (CEEC) Model that gives the probabilities of equity crises one year in advance. The CEEC model uses suitable precursor signals and is agnostic regarding dynamical origins of crises. The precursors accumulate in...

This paper identifies leading indicators of fiscal crises based on a large sample of countries at different stages of development over 1970-2015. Our results are robust to different methodologies and sample periods. Previous literature on early warning sistems (EWS) for fiscal crises is scarce...

Stochastic processes is one of the key operations research tools for analysis of complex phenomenon. This paper has a unique application to the study of mean changing models in stock markets. The idea is to enter and exit stock markets like Apple Computer and the broad S&P500 index at good times...

The recent financial crisis has raised numerous questions about the accuracy of value-at-risk (VaR) as a tool to quantify extreme losses. In this paper we develop data-driven VaR approaches that are based on the principle of optimal combination and that provide robust and precise VaR forecasts...