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Logit Versus Discriminant Analysis: A Specification Test

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  • Andrew W. Lo

Abstract

Two of the most widely used statistical techniques for analyzing discrete economic phenomena are discriminant analysis (DA) and logit analysis. For purposes of parameter estimation, logit has been shown to be more robust than DA. However, under certain distributional assumptions both procedures yield consistent estimates and the DA estimator is asymptotically efficient. This suggests a natural Hausman specification test of these distributional assumptions by comparing the two estimators. In this paper, such a test is proposed and an empirical example is provided. The finite-sample properties of the test statistic are also explored through some sampling experiments.

Suggested Citation

  • Andrew W. Lo, "undated". "Logit Versus Discriminant Analysis: A Specification Test," Rodney L. White Center for Financial Research Working Papers 11-85, Wharton School Rodney L. White Center for Financial Research.
    • Handle: RePEc:fth:pennfi:11-85
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    Cited by:

    1. Selcuk Caner & Mehmet Baha Karan, 2012. "Screening Creditworthiness of SME's: The Case of Small Business Assistance in Turkey," Multinational Finance Journal, Multinational Finance Journal, vol. 16(1-2), pages 1-20, March - J.
    2. Oscar Martínez A., 2003. "Determinantes de Fragilidad en las Empresas Colombianas," Borradores de Economia 259, Banco de la Republica de Colombia.
    3. Hamerle, Alfred & Liebig, Thilo & Rösch, Daniel, 2003. "Credit Risk Factor Modeling and the Basel II IRB Approach," Discussion Paper Series 2: Banking and Financial Studies 2003,02, Deutsche Bundesbank.
    4. Стайков, Ивайло, 2007. "Антидискриминационни Аспекти На Колективното Трудово Договаряне [Anti-discrimination aspects of collective bargaining]," MPRA Paper 107232, University Library of Munich, Germany.
    5. Mehmet Karan & Aydın Ulucan & Mustafa Kaya, 2013. "Credit risk estimation using payment history data: a comparative study of Turkish retail stores," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 21(2), pages 479-494, March.

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