Forecasting the Insolvency of U.S. Banks Using Support Vector Machines (SVM) Based on Local Learning Feature Selection

International Journal of Computational Economics and Econometrics, vol. 3(1/2),

11 Pages Posted: 28 Jan 2014

See all articles by Theophilos Papadimitriou

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace

Periklis Gogas

Democritus University of Thrace - Department of Economics

Vasilios Plakandaras

Democritus University of Thrace

John Mourmouris

Democritus University of Thrace - Department of Economics

Date Written: November 7, 2013

Abstract

We propose an Support Vector Machine (SVM) based structural model in order to forecast the collapse of banking institutions in the U.S. using publicly disclosed information from their financial statements on a four-year rolling window. In our approach, the optimum input variable set is defined from a large dataset using an iterative relevance-based selection procedure. We train an SVM model to classify banks as solvent and insolvent. The resulting model exhibits significant ability in bank default forecasting.

Keywords: Bank insolvency, SVM, local learning, feature selection

JEL Classification: G21

Suggested Citation

Papadimitriou, Theophilos and Gogas, Periklis and Plakandaras, Vasilios and Mourmouris, John, Forecasting the Insolvency of U.S. Banks Using Support Vector Machines (SVM) Based on Local Learning Feature Selection (November 7, 2013). International Journal of Computational Economics and Econometrics, vol. 3(1/2), . Available at SSRN: https://ssrn.com/abstract=2386116

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace ( email )

University Campus
Komotini, 69100
Greece

HOME PAGE: http://econ.duth.gr/author/papadimi/

Periklis Gogas

Democritus University of Thrace - Department of Economics ( email )

Komotini, 69100
Greece

HOME PAGE: http://www.econ.duth.gr/personel/dep/gkogkas/index.en.shtml

Vasilios Plakandaras (Contact Author)

Democritus University of Thrace ( email )

University Campus
Komotini, 69100
Greece

John Mourmouris

Democritus University of Thrace - Department of Economics ( email )

Komotini
Greece

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