Quotation Hofmarcher, Paul, Kerbl, Stefan, Grün, Bettina, Sigmund, Michael, Hornik, Kurt. 2012. Model Uncertainty and Aggregated Default Probabilities: New Evidence from Austria. Research Report Series, Institute for Statistics and Mathematics, Report 116.


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Abstract

Understanding the determinants of aggregated default probabilities (PDs) has attracted substantial research over the past decades. This study addresses two major difficulties in understanding the determinants of aggregate PDs: Model uncertainty and multicollinearity among the regressors. We present Bayesian Model Averaging (BMA) as a powerful tool that overcomes model uncertainty. Furthermore, we supplement BMA with ridge regression to mitigate multicollinearity. We apply our approach to an Austrian dataset. Our findings suggest that factor prices like short term interest rates and energy prices constitute major drivers of default rates, while firms' profits reduce the expected number of failures. Finally, we show that the results of our baseline model are fairly robust to the choice of the prior model size.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Model Uncertainty and Aggregated Default Probabilities: New Evidence from Austria
Title of whole publication Research Report Series, Institute for Statistics and Mathematics, Report 116
Year 2012
URL http://epub.wu.ac.at/3383/

Associations

People
Hofmarcher, Paul (Details)
Grün, Bettina (Details)
Sigmund, Michael (Details)
Hornik, Kurt (Details)
External
Kerbl, Stefan
Organization
Institute for Statistics and Mathematics IN (Details)
Research Institute for Computational Methods FI (Details)
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