The Impact of Equity Misvaluation on Predictive Accuracy of Bankruptcy Models
Posted: 21 May 2019
Date Written: May 2014
Abstract
This paper examines the impact of equity misvaluation on the predictive accuracy of bankruptcy models. We find that structural bankruptcy prediction models are not affected by misvaluation. However, for hazard models, forecasting accuracy for properly-valued firms is greater than for misvalued firms and model forecasting accuracy improves significantly if model coefficients vary with misvaluation. Our results show the importance of taking stock market misvaluation into account when forecasting bankruptcies using hazard models.
Keywords: bankruptcy prediction, market efficiency, accounting information relevance
JEL Classification: G33, G14, M41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Default Risk in Equity Returns
By Maria Vassalou and Yuhang Xing
-
News Related to Future GDP Growth as a Risk Factor in Equity Returns
-
News Related to Future GDP Growth as Risk Factors in Equity Returns
-
By John Y. Campbell, Jens Hilscher, ...
-
By John Y. Campbell, Jens Hilscher, ...
-
Forecasting Default with the Kmv-Merton Model
By Sreedhar T. Bharath and Tyler Shumway
-
Exchange Rate and Foreign Inflation Risk Premiums in Global Equity Returns
-
By Maria Vassalou and Yuhang Xing
-
Bankruptcy Prediction With Industry Effects
By Sudheer Chava and Robert A. Jarrow