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2015 | OriginalPaper | Chapter

89. Discriminant Analysis and Factor Analysis: Theory and Method

Authors : Lie-Jane Kao, Cheng-Few Lee, Tzu Tai

Published in: Handbook of Financial Econometrics and Statistics

Publisher: Springer New York

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Abstract

Three multivariate techniques, namely, discriminant analysis, factor analysis, and principal component analysis, are discussed in detail. In addition, the stepwise discriminant analysis by Pinches and Mingo (1973) is improved using a goal programming technique. These methodologies are applied to determine useful financial ratios and the subsequent bond ratings. The analysis shows that the stepwise discriminant analysis fails to be an efficient solution as the hybrid approach using the goal programming technique outperforms it, which is a compromised solution for the maximization of the two objectives, namely, the maximization of the explanatory power and the maximization of discriminant power.

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Title: Discriminant Analysis and Factor Analysis: Theory and Method
Authors: Lie-Jane Kao
Cheng-Few Lee
Tzu Tai
Publisher: Springer New York
Book: Handbook of Financial Econometrics and Statistics
Print ISBN: 978-1-4614-7749-5

Electronic ISBN: 978-1-4614-7750-1

Copyright Year: 2015
DOI: https://doi.org/10.1007/978-1-4614-7750-1_89