Forecasting Corporate Defaults in the German Stock Market

42 Pages Posted: 2 Sep 2016

See all articles by Richard Mertens

Richard Mertens

University of Bremen - Department of Business Administration

Thorsten Poddig

University of Bremen

Christian Fieberg

University of Bremen - Department of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2016

Abstract

We estimate and test several default risk models using new and unique data on corporate defaults in the German stock market. While defaults were extremely rare events in the 1990s, they have been a characteristic feature of the German stock market since the early 2000s. We apply the structural Merton (1974) Distance-to-Default as well as several reduced form models. A variety of performance evaluation tools, including ROC-Analysis, calibration tests and loan market simulations, suggests that the Campbell et al. (2008) failure score should be used as a benchmark default risk model in research and also in the industry. We warn of several pitfalls associated with the Altman (1968) Z-Score and the Distance-to-Default.

Keywords: Default Risk, Credit Risk

JEL Classification: G32, G33

Suggested Citation

Mertens, Richard and Poddig, Thorsten and Fieberg, Christian, Forecasting Corporate Defaults in the German Stock Market (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2833454 or http://dx.doi.org/10.2139/ssrn.2833454

Richard Mertens (Contact Author)

University of Bremen - Department of Business Administration ( email )

Bremen, D-28359
Germany

Thorsten Poddig

University of Bremen ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany

Christian Fieberg

University of Bremen - Department of Business Administration ( email )

Bremen, D-28359
Germany

HOME PAGE: http://www.fiwi.uni-bremen.de

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