Edward I. Altman, Commercial Bank Lending: Process, Credit Scoring, and Costs of Errors in Lending, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 4, Proceedings of 15th Annual Conference of the Western Finance Association, June 19-21, 1980, San Diego, California (Nov., 1980), pp. 813-832

In a recent article in this Journal Joy and Tollefson [10] (hereafter J&T) critically analyzed discriminant analysis and its application to bankruptcy analysis. The authors make several interesting points and provide a useful discussion of the application of this statistical technique in finance. There are, however, three aspects of their presentation which need further elaboration. These relate to their discussions of (1) the difference between the stability of the discriminant model and its predictive ability, (2) the alternative methods of making inferences about the relative discriminatory power of variables, and (3) the reference statistics to use in assessing classification efficiency. In commenting on these points we will make use of the data from the Altman [1] study as did J&T.

This study is another attempt to analyze the behavior of common stock prices. In the last decade, and even before that, literature has spewed forth an abundant supply of studies in this area, from random walkers, to optimum portfolioers, to performance measurers. Terms such as risk and return, variance and covariance, and variability and volatility proliferate journal pages and our daily conversations.

Edward I. Altman, Menachem Brenner, Information Effects and Stock Market Response to Signs of Firm Deterioration, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 1 (Mar., 1981), pp. 35-51

Edward I. Altman, Michel Margaine, Michel Schlosser, Pierre Vernimmen, Financial and Statistical Analysis for Commercial Loan Evaluation: A French Experience, The Journal of Financial and Quantitative Analysis, Vol. 9, No. 2 (Mar., 1974), pp. 195-211