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Quantitative finance and methods ( masters degree) - Statistics Project Example

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In the evaluation of corporate liquidations, a logistic regression is used. Based on historical data, a firm is assigned a value one if it goes into liquidation the following year, and zero if it does not. Computer output shows:
return on capital employed and retained…
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Quantitative finance and methods ( masters degree)
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Download file to see previous pages at return on capital employed and retained earnings/total assets have a very high correlation (0.6), it would be advisable to remove both of them in order to avoid the problem of problem of multicollinearity. Regarding whether to remove either retained earnings/total assets or return on capital employed based on the likelihood ratio tests, it will depend on their respective p-values. The one with its p-value approaching 1 than the other should be removed, as that implies that it is irrelevant.
(e) From the coefficients of the original logistic regression, and ignoring the likelihood ratio tests, is it generally true that firms with a higher current ratio are more likely to go into liquidation? Explain. (6 marks)
Firms with a higher current ratio are more likely to go into liquidation. This is because if we were to carry out a comparative analysis between the original logistic regression and Firm X statistics, it is apparent that the lower the returns of a firm, the higher the current ratio. Furthermore, it is a common knowledge that the firms with lower returns are the ones with the highest possibility if of going into liquidation.
since we have concluded that firms with a higher current ratio are more likely to go into liquidation, the p-value must be less than 0.05, which shows that the model is statistically significant at the 95% confidence level.
Whether the above two results are statistically significant, at the 95% level of confidence will depend on the p-value generated from the computer. If p-value is less than 0.05, the two results are statistically significant, at the 95% level of confidence.
Q2. In evaluating the default risk of bank customers, two approaches are used, namely, multiple discriminant analysis and conventional methods. From a sample of 460 customers, observed results and predicted results of good and bad loans are summarised below.
Q3. You are working on a research project on capital structure. You ...Download file to see next pagesRead More
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