Bank insolvency risk and time-varying Z-score measures

Laetitia Lepetit (1) , Frank Strobel (2)

1 LAPE - Laboratoire d'Analyse et de Prospective Economique
2 University of Birmingham [Birmingham]

We compare the di¤erent existing approaches to the construction of time-varying Z-score measures, plus an additional alternative one, using a panel of banks for the G20 group of countries covering the period 1992–2009. We examine which ways of estimating the moments used in these di¤erent ap-proaches best …t the data, using a simple root mean squared error criterion. Our results are supportive of our alternative time-varying Z-score measure: it uses mean and standard deviation estimates of the return on assets cal-culated over full samples combined with current values of the capital-asset ratio, and is thus straightforward to implement.

Mots clés: insolvency risk; Z-score; time-varying; mean squared error

Domaines: Economies et finances

Laetitia Lepetit, Frank Strobel. Bank insolvency risk and time-varying Z-score measures. Journal of International Financial Markets, Institutions and Money, 2013, 25, pp.73 - 87. ⟨10.1016/j.intfin.2013.01.004⟩. ⟨hal-01098721⟩