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Implementation of the Probability of Bankruptcy by Campbell, Hilscher and Szilagyi (also described in the book "Quantitative Value")
Costantino
posted Jul 8, 2015
Finance Theory Papers Show Q Research

Hello everyone,

I implemented the algorithm described in the paper "In Search of Distress Risk" by John Campbell, Jens Hilscher, and Jan Szilagyi .
Link to the paper: http://scholar.harvard.edu/campbell/publications/search-distress-risk

As outlined in the book "Quantitative Value" and in their blog post
http://blog.alphaarchitect.com/2011/07/23/stop-using-altman-z-score/
this algorithm is much better than the previous ones in predicting bankruptcy.

Maybe I did something wrong, because my implementation gives Apple a probability of bankruptcy equals to 100%
Would you help me to verify and improve my implementation?

The Research Notebook is here:
https://www.quantopian.com/research/notebooks/CHS%20Model.ipynb

Comments and feedbacks are very welcome!
Costantino

3 responses
Costantino
Jul 8, 2015

I hope that the Research Notebook Link above works, otherwise can somebody explain me how to share a research notebook in the forum.
I see only a button "Attach Backtest" but no "Attach Notebook".

Thanks,
Costantino

Josh Payne
Jul 8, 2015

Hi Costantino,
You can share a notebook by clicking the "Share" button associated to each cell within your notebook.

Here's a quick image to help: https://www.evernote.com/l/ACiGMbgbVGVN3LhD3d8xibWSN_sqtIWLJng

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Costantino
Jul 8, 2015

Thanks, Josh.
The Notebook is share here: https://www.quantopian.com/posts/campbell-hilscher-szilagyi-chs-model-probability-of-corporate-failure

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.