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The Strathprints institutional repository is a digital archive of University of Strathclyde's Open Access research outputs. Strathprints provides access to thousands of Open Access research papers by Strathclyde researchers, including by researchers from the Physical Activity for Health Group based within the School of Psychological Sciences & Health. Research here seeks to better understand how and why physical activity improves health, gain a better understanding of the amount, intensity, and type of physical activity needed for health benefits, and evaluate the effect of interventions to promote physical activity.

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Variable reduction, sample selection bias and bank retail credit scoring

Marshall, A.P. and Tang, L. and Milne, Alistair (2010) Variable reduction, sample selection bias and bank retail credit scoring. Journal of Empirical Finance, 17 (3). 501–512.

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Abstract

This paper investigates the effect of including the customer loan approval process to the estimation of loan performance and explores the influence of sample selection bias in predicting the probability of default. The bootstrap variable reduction technique is applied to reduce the variable dimension for a large dataset drawn from a major UK retail bank. The results show a statistically significant correlation between the loan approval and performance processes. We further demonstrate an economically significant improvement in forecasting performance when taking into account sample selection bias. We conclude that financial institutions can obtain benefits by correcting for sample selection bias in their credit scoring models.