Linear Discriminant Analysis in the Financial Market

When it comes to finance, every investor wants to make sure they are putting their money in the right places. The last thing they need is having one of their debtors or investments go bankrupt! However, in the financial market, bankruptcy prediction or prediction of financial distress in companies has always been a challenging task. Fitzpatrick, in the 1930s compared 13 ratios that differentiated between failed and successful firms. Ever since then, a lot of research has been going on concerning this topic. Later on, in 1968 Altman went on to use Linear Discriminant Analysis (LDA) to develop a five-factor…...