On the Financial Application of Discriminant Analysis: Comment

Elton Scott

Journal of Financial and Quantitative Analysis, 1978, vol. 13, issue 1, 201-205

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.

Date: 1978
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