Data Segmentation Technique – Financial Modeling

(Last Updated On: August 26, 2011)


Data Segmentation Technique – Financial Modeling

There are 6 financial ratios which are to be used in order to predict the probability of liquidation for defaulted firm. Since the data set has only 239 records, i need some technique/methodology to predict the dependent variable using all the 6 financial ratios. I tried using logistic regression but as number of observation are less, the approach doesn’t works. I am thinking on segmenting the variables and then assign scores to each segment based on the historical liquidation rate in each segment. Can anyone suggest some statistical technique for segmenting the variables or a better approach to solve the problem.

1 day ago

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Looks like you got a rough problem with only 239 observations, but the logistic regression might not be a good fit for your job as it is used with discrete dependent variables, yours looks like being continuous so I would use Multiple Regression Analysis. Keep an eye on the ratios as using all might not be the best option, specially with only 239 obs.

 

 

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