Predicting Bankruptcy and Catastrophic Loss: A Portfolio Approach

<p>This paper uses logistic regression to assign risk of catastrophic loss (defined as a loss of 80% or more of market cap value) to companies, and analyzes the subsequent returns of high risk and low risk portfolios. In the final model, the low risk portfolio had a three-year mean return of approximately 47%, with a catastrophic loss rate of 1.1%. The high-risk portfolio had a three-year mean return of approximately .5%, with a catastrophic loss rate of 29%. The paper expands upon a model developed by Dr. Abhay Gaur and Dr. Leo Rebholz in Rebholz’s 2002 thesis, Bankruptcy as Cusp Catastrophe. This paper first validates the model, introduces a new variable, which examines financial momentum, and transforms the bankruptcy variable to catastrophic loss. The success of the model was viewed through a comparative approach of high and low risk portfolios.</p>

Name thesis:degree_name

MS

Level thesis:degree_level

Worldwide Access

Discipline thesis:degree_discipline

Computational Mathematics

Year dc:date.available

2017

Author dc:creator

• McKibben, Michael

Contributors dc:contributor

• Abhay Gaur
• John Kern
• Frank D'Amico
• Sean Tierney

• Bankruptcy
• catastrophic
• cusp
• logistic
• Portfolio
• regression

Language dc:language

English

Repository record dc:identifier

https://dsc.duq.edu/etd/140

OAI identifier oai:identifier

oai:dsc.duq.edu:etd-1139