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Additive Intensity Regression Models in Corporate Default Analysis

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  • David Lando
  • Mamdouh Medhat
  • Mads Stenbo Nielsen
  • Søren Feodor Nielsen

Abstract

We consider additive intensity (Aalen) models as an alternative to the multiplicative intensity (Cox) models for analyzing the default risk of a sample of rated, nonfinancial U.S. firms. The setting allows for estimating and testing the significance of time-varying effects. We use a variety of model checking techniques to identify misspecifications. In our final model, we find evidence of time-variation in the effects of distance-to-default and short-to-long term debt. Also we identify interactions between distance-to-default and other covariates, and the quick ratio covariate is significant. None of our macroeconomic covariates are significant. Copyright The Author, 2013. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • David Lando & Mamdouh Medhat & Mads Stenbo Nielsen & Søren Feodor Nielsen, 2013. "Additive Intensity Regression Models in Corporate Default Analysis," Journal of Financial Econometrics, Oxford University Press, vol. 11(3), pages 443-485, June.
    • Handle: RePEc:oup:jfinec:v:11:y:2013:i:3:p:443-485
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbs018
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    Cited by:

    1. Jessen, Cathrine & Lando, David, 2015. "Robustness of distance-to-default," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 493-505.
    2. Agosto, Arianna & Cavaliere, Giuseppe & Kristensen, Dennis & Rahbek, Anders, 2016. "Modeling corporate defaults: Poisson autoregressions with exogenous covariates (PARX)," Journal of Empirical Finance, Elsevier, vol. 38(PB), pages 640-663.

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