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Modeling bank default intensity in the USA using autoregressive duration models

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  • Siakoulis, Vasilios

Abstract

This paper employs a duration based approach in order to model the inter-arrival times of bank failures in the US banking system for the period 1934 - 2014. Conditional duration models that allow duration between bank failures to depend linearly or nonlinearly on its past history are estimated and evaluated. We find evidence of strong persistence along with non-monotonic hazard rates which imply a financial contagion pattern according to which, a high frequency of bank failures generates turbulence which shortly after leads to additional fails, whereas prolonged periods without abnormal events signify the absence of contagious dependence which increases the relative periods between bank failure appearance. In addition, we find that mean duration levels of tranquility spells or equivalently the bank fail events intensity is subject to long run shifts. Further, we obtain statistical significant results when we allow duration to depend linearly on past information variables that capture systemic bank crisis factors along with stock and bond market effects.

Suggested Citation

  • Siakoulis, Vasilios, 2015. "Modeling bank default intensity in the USA using autoregressive duration models," MPRA Paper 64526, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:64526
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    References listed on IDEAS

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    Cited by:

    1. Kristóf, Tamás & Virág, Miklós, 2022. "EU-27 bank failure prediction with C5.0 decision trees and deep learning neural networks," Research in International Business and Finance, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Autoregressive Conditional Duration; Bank Failures; Financial Contagion; Structural breaks;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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