Quotation Hofmarcher, Paul, Kerbl, Stefan, Grün, Bettina, Sigmund, Michael, Hornik, Kurt. 2014. Model uncertainty and aggregated default probabilities: New evidence from Austria. Applied Economics, 46, (8), 871-879.


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Abstract

Understanding the determinants of aggregated corporate default probabilities (PDs) has attracted substantial research interest 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 data set. Our findings suggest that factor prices like short-term interest rates (STIs) 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 model are fairly robust with respect to the choice of the BMA parameters.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Applied Economics
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, VW-D
Language English
Title Model uncertainty and aggregated default probabilities: New evidence from Austria.
Volume 46
Number 8
Year 2014
Page from 871
Page to 879
Reviewed? Y
DOI http://dx.doi.org/10.1080/00036846.2013.859378
Open Access N
JEL JEL: E44, C52, E37

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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