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Modeling corporate defaults: Poisson autoregressions with exogenous covariates (PARX)

Arianna Agosto, Giuseppe Cavaliere (), Dennis Kristensen () and Anders Rahbek

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We develop a class of Poisson autoregressive models with additional covariates (PARX) that can be used to model and forecast time series of counts. We establish the time series properties of the models, including conditions for stationarity and existence of moments. These results are in turn used in the analysis of the asympotic properties of the maximum-likelihood estimators of the models. The PARX class of models is used to analyse the time series properties of monthly corporate defaults in the US in the period 1982-2011 using financial and economic variables as exogeneous covariates. Results show that our model is able to capture the time series dynamics of corporate defaults well, including the well-known default counts clustering found in data. Moreover, we find that while in general current defaults do indeed affect the probability of other firms defaulting in the future, in recent years economic and financial factors at the macro level are capable to explain a large portion of the correlation of US firms defaults over time.

Keywords: corporate defaults; count data; exogeneous covariates; Poisson autoregression; estimation (search for similar items in EconPapers)
JEL-codes: C13 C22 C25 G33 (search for similar items in EconPapers)
Pages: 38
Date: 2015-01-28
New Economics Papers: this item is included in nep-ecm
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Journal Article: Modeling corporate defaults: Poisson autoregressions with exogenous covariates (PARX) (2016) Downloads
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