On the consistency of the Z-score to measure the bank risk
| Autor: | Ion Lapteacru |
|---|---|
| Přispěvatelé: | Mesmer, Cyril, Laboratoire d'analyse et de recherche en économie et finance internationales (Larefi), Université de Bordeaux (UB) |
| Jazyk: | angličtina |
| Rok vydání: | 2016 |
| Předmět: |
050208 finance
business.industry 05 social sciences Z-score 1. No poverty Skew Distribution (economics) Standard score [SHS.ECO]Humanities and Social Sciences/Economics and Finance Bank risk Measure (mathematics) Central and Eastern European economies Eastern european JEL: G - Financial Economics/G.G2 - Financial Institutions and Services/G.G2.G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages Consistency (statistics) Capital (economics) 0502 economics and business Economics Econometrics Spite 050207 economics business [SHS.ECO] Humanities and Social Sciences/Economics and Finance |
| Popis: | This paper raises questions about the consistency of the Z-score, which is the most applied accounting-based measure of bank risk. In spite of its advantage, namely the concept of risk on which it relies, the traditional formula is precisely inconsistent with its own concept. The Z-score is deduced from the probability that bank’s losses exceed its capital, but under the very unrealistic assumption of normally distributed returns on assets. Consequently, we show that the traditional Z-score fails to consider correctly the distribution of banks’ returns. To make the Z-score consistent and preserve its original concept of risk, we propose more flexible distribution functions. Between skew normal and stable distributions, we prove that the latter fits the best the distribution of banks’ returns and therefore provides more reliable results for the Z-score. An application on the experience of the Central and Eastern European banks confirms this theoretical prove. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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