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On the Financial Application of Discriminant Analysis: Comment

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  • Scott, Elton

Abstract

In a timely, comprehensive article in this journal, Joy and Tollefson (J & T hereafter) treated design and interpretation problems for linear multiple discriminant analysis (LMDA). Although the article is generally correct in treating a complex topic, it has two problems:1. The (widely-used) split-sample validation technique that J & T used is an inappropriate method for establishing the efficacy of the estimated discriminant function.2. J & T reach erroneous conclusions on the correctness of two methods for assessing the discriminatory power of individual variables.This comment addresses these two problems.

Suggested Citation

  • Scott, Elton, 1978. "On the Financial Application of Discriminant Analysis: Comment," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(1), pages 201-205, March.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:01:p:201-205_00
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    1. Balcaen, Sofie & Ooghe, Hubert, 2006. "35 years of studies on business failure: an overview of the classic statistical methodologies and their related problems," The British Accounting Review, Elsevier, vol. 38(1), pages 63-93.

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