A hybrid information approach to predict corporate credit risk. Issue 9 (21st May 2018)

• Record Type: Journal Article
• Authors: Bu, Di; Kelly, Simone; Liao, Yin; Zhou, Qing
• Is Part Of: Journal of futures markets. Volume 38:Issue 9(2018)
• Page Start: 1062
• Page End: 1078
• Publication Date: 2018-05-21
• Subjects: bond spread -- corporate credit risk -- model combination -- reduced‐form model -- structural model; Commodity exchanges -- Periodicals; Foreign exchange futures -- Periodicals; 332.632
• DOI: 10.1002/fut.21930
• Languages: English
• ISSNs: 0270-7314

Abstract

Abstract : This study proposes a hybrid information approach to predict corporate credit risk. In contrast to the previous literature that debates which credit risk model is the best, we pool information from a diverse set of structural and reduced‐form models to produce a model combination based on credit risk prediction. Compared with each single model, the pooled strategies yield consistently lower average risk prediction errors over time. We also find that while the reduced‐form models contribute more in the pooled strategies for speculative‐grade names and longer maturities, the structural models have higher weights for shorter maturities and investment grade names.