
arXiv: 2212.12051
Using a comprehensive sample of 2,585 bankruptcies from 1990 to 2019, we benchmark the performance of various machine learning models in predicting financial distress of publicly traded U.S. firms. We find that gradient boosted trees outperform other models in one-year-ahead forecasts. Variable permutation tests show that excess stock returns, idiosyncratic risk, and relative size are the more important variables for predictions. Textual features derived from corporate filings do not improve performance materially. In a credit competition model that accounts for the asymmetric cost of default misclassification, the survival random forest is able to capture large dollar profits.
FOS: Economics and business, FOS: Computer and information sciences, Computer Science - Machine Learning, Quantitative Finance - Computational Finance, Computational Finance (q-fin.CP), Machine Learning (cs.LG)
FOS: Economics and business, FOS: Computer and information sciences, Computer Science - Machine Learning, Quantitative Finance - Computational Finance, Computational Finance (q-fin.CP), Machine Learning (cs.LG)
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