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On the Financial Applications of Discriminant Analysis

Published online by Cambridge University Press:  19 October 2009

O. Maurice Joy  and
John O. Tollefson
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Extract

In recent years the application of discriminant analysis to two-category (dichotomous) classification problems in empirical financial research has substantially increased. However, these studies have given relatively little attention to design and interpretation difficulties associated with discriminant analysis. Consequently, the conclusions and generalizations that can be drawn from such studies are frequently tenuous and questionable. This paper's purpose is to discuss the methodology of discriminant analysis. While the paper is oriented toward financial applications of discriminant analysis, our discussion is not peculiar to finance. Furthermore, many of the methodological issues we address are relevant to the general problem of developing and testing dichotomous classification models and arise whether model developing is by discriminant analysis or some other method.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 5 , December 1975 , pp. 723 - 739
Copyright
Copyright © School of Business Administration, University of Washington 1975

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References

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