title: Prediction: coveted, yet forsaken? Introducing a cross-validated predictive ability test in partial least squares path modeling

authors: Liengaard, Benjamin Dybro

subjects: Social Sciences

abstract: Management researchers often develop theories and policies that are forward‐looking. The prospective outlook of predictive modeling, where a model predicts unseen or new data, can complement the retrospective nature of causal‐explanatory modeling that dominates the field. Partial least squares (PLS) path modeling is an excellent tool for building theories that offer both explanation and prediction. A limitation of PLS, however, is the lack of a statistical test to assess whether a proposed or alternative theoretical model offers significantly better out‐of‐sample predictive power than a benchmark or an established model. Such an assessment of predictive power is essential for theory development and validation, and for selecting a model on which to base managerial and policy decisions. We introduce the cross‐validated predictive ability test (CVPAT) to conduct a pairwise comparison of predictive power of competing models, and substantiate its performance via multiple Monte Carlo studies. We propose a stepwise predictive model comparison procedure to guide researchers, and demonstrate CVPAT's practical utility using the well‐known American Customer Satisfaction Index (ACSI) model.

text: Prediction: coveted, yet forsaken? Introducing a cross-validated predictive ability test in partial least squares path modeling Management researchers often develop theories and policies that are forward‐looking. The prospective outlook of predictive modeling, where a model predicts unseen or new data, can complement the retrospective nature of causal‐explanatory modeling that dominates the field. Partial least squares (PLS) path modeling is an excellent tool for building theories that offer both explanation and prediction. A limitation of PLS, however, is the lack of a statistical test to assess whether a proposed or alternative theoretical model offers significantly better out‐of‐sample predictive power than a benchmark or an established model. Such an assessment of predictive power is essential for theory development and validation, and for selecting a model on which to base managerial and policy decisions. We introduce the cross‐validated predictive ability test (CVPAT) to conduct a pairwise comparison of predictive power of competing models, and substantiate its performance via multiple Monte Carlo studies. We propose a stepwise predictive model comparison procedure to guide researchers, and demonstrate CVPAT's practical utility using the well‐known American Customer Satisfaction Index (ACSI) model.

year: 2020

title: Credit Loss Dynamics in Australasian Banking

authors: Hess, Kurt

subjects: Credit risk

abstract: The purpose of this thesis is to analyze the drivers and dynamics of credit losses in Australasian banking over an extended period of time in order to improve the means by which financial institutions manage their credit risks and regulatory bodies safeguard the stability and integrity of the financial system.
The analysis is based on a specially constructed data base of credit loss and provisioning data retrieved from original financial reports published by Australian and New Zealand banks. The observation period covers 1980 to 2005, starting at the time when such information was published for the first time in bank financial statements. It moreover covers the time of major crises which occurred in both Australia and New Zealand in the late 1980s and early 1990s.
The heterogeneity of reporting the data both amongst banks and through time requires the development of a reporting typology which allows data extraction with equivalent informational content. As a thorough study of credit risks requires long data series often not available from third party data providers, the method developed here will provide value to a range of researchers.
Based on an evaluation of many alternative proxies which track a bank's credit loss experience (CLE), the thesis proposes a preferred model for impaired assets expense (as % of loans) as dependent variable, mainly because of its timely nature and good data availability. Explanatory variables include aggregate macro variables of which changes in unemployment and the return in the share markets are found to have the most significant influence on a bank's credit losses. Bank-specific control variables include a pre-provision earnings proxy whose significance points to the use of provisions for the purpose of income smoothing by Australasian banks. The model also controls for size and nature of lending as smaller, retail-oriented housing lenders, on average, exhibit lower loan losses. Clear results are found with regard to the effect of rapid expansion which appears to be followed by a surge of bad debt provisions 2 to 3 years later. Moreover, inefficient banks tend to suffer greater credit losses.
An important part of the thesis looks at the characteristics of alternative CLE proxies such as stock of provisions, impaired assets and write-offs which have been used by earlier literature. Estimating the preferred model with such alternative CLE parameters confirms their peculiarities such as the memory character of stock of provisions and the delayed nature of write-offs. These measures correlate rather poorly amongst themselves which calls for caution in the comparative interpretation of earlier studies that use differing CLE proxies.

text: Credit Loss Dynamics in Australasian Banking The purpose of this thesis is to analyze the drivers and dynamics of credit losses in Australasian banking over an extended period of time in order to improve the means by which financial institutions manage their credit risks and regulatory bodies safeguard the stability and integrity of the financial system.
The analysis is based on a specially constructed data base of credit loss and provisioning data retrieved from original financial reports published by Australian and New Zealand banks. The observation period covers 1980 to 2005, starting at the time when such information was published for the first time in bank financial statements. It moreover covers the time of major crises which occurred in both Australia and New Zealand in the late 1980s and early 1990s.
The heterogeneity of reporting the data both amongst banks and through time requires the development of a reporting typology which allows data extraction with equivalent informational content. As a thorough study of credit risks requires long data series often not available from third party data providers, the method developed here will provide value to a range of researchers.
Based on an evaluation of many alternative proxies which track a bank's credit loss experience (CLE), the thesis proposes a preferred model for impaired assets expense (as % of loans) as dependent variable, mainly because of its timely nature and good data availability. Explanatory variables include aggregate macro variables of which changes in unemployment and the return in the share markets are found to have the most significant influence on a bank's credit losses. Bank-specific control variables include a pre-provision earnings proxy whose significance points to the use of provisions for the purpose of income smoothing by Australasian banks. The model also controls for size and nature of lending as smaller, retail-oriented housing lenders, on average, exhibit lower loan losses. Clear results are found with regard to the effect of rapid expansion which appears to be followed by a surge of bad debt provisions 2 to 3 years later. Moreover, inefficient banks tend to suffer greater credit losses.
An important part of the thesis looks at the characteristics of alternative CLE proxies such as stock of provisions, impaired assets and write-offs which have been used by earlier literature. Estimating the preferred model with such alternative CLE parameters confirms their peculiarities such as the memory character of stock of provisions and the delayed nature of write-offs. These measures correlate rather poorly amongst themselves which calls for caution in the comparative interpretation of earlier studies that use differing CLE proxies.

year: 2008

title: Population diversity in Aotearoa New Zealand: Insights from the CaDDANZ research programme

authors: Stone, Geoff

abstract: CaDDANZ was a New Zealand Government-funded project studying the impacts of growing population diversity in Aotearoa New Zealand. The project ran from 2014 to 2020 and was extended to March 2021 due to the effects of the global COVID-19 pandemic. Staffed by a multidisciplinary team of researchers, CaDDANZ aimed to identify changing demographics and the impacts of ethnic and demographic diversity on aspects of economic and social change. This report has synthesised a bundle of key insights that could only have surfaced through the reflection on the interplay between the research questions that the original bid set out to address. While we, as a project team, did not intend to produce transdisciplinary or even interdisciplinary work on migration, diversity or the diversity dividend, setting a goal to synthesise something from the project as a whole has produced this report. Using social cohesion as a sorting mechanism for the insights has meant this overview is selective and high level. Not all the projects can be read against a social cohesion or even social inclusion lens. In particular, many of the econometric outputs explicitly addressed aspects of diversity as an economic dividend and that work is not highlighted in the synthesis. 
Three broad themes are addressed 
1. Immigration and diversity – understanding population trends 
2. [Re] conceptualising ethno-demographic diversity in Aotearoa – Tangata whenua perspectives 
3. Diversity in context – in different settings and over time 
The report concludes with four high-level insights 
1. Immigration policy needs to re-examine its position in relation to Tiriti o Waitangi where any Crown partnership relationship is currently lacking. 
2. Despite social cohesion being a negotiated term, its use as a framing for the impacts of migration on both the host country and individual migrant lives is underpinned by its use in the Royal Commission of Inquiry into the terrorist attack on Christchurch mosques on 15 March 2019 and is preferable to the concept of a diversity dividend.1 
3. While ethnocultural diversity is the default for ‘diversity dividend’ research, the concept of the social organisation of difference has broader relevance to social justice-oriented policy development.2 
4. The use of wide range of different methodologies is vital for the production of wellevidenced, theory-informed strategies and policies.

text: Population diversity in Aotearoa New Zealand: Insights from the CaDDANZ research programme CaDDANZ was a New Zealand Government-funded project studying the impacts of growing population diversity in Aotearoa New Zealand. The project ran from 2014 to 2020 and was extended to March 2021 due to the effects of the global COVID-19 pandemic. Staffed by a multidisciplinary team of researchers, CaDDANZ aimed to identify changing demographics and the impacts of ethnic and demographic diversity on aspects of economic and social change. This report has synthesised a bundle of key insights that could only have surfaced through the reflection on the interplay between the research questions that the original bid set out to address. While we, as a project team, did not intend to produce transdisciplinary or even interdisciplinary work on migration, diversity or the diversity dividend, setting a goal to synthesise something from the project as a whole has produced this report. Using social cohesion as a sorting mechanism for the insights has meant this overview is selective and high level. Not all the projects can be read against a social cohesion or even social inclusion lens. In particular, many of the econometric outputs explicitly addressed aspects of diversity as an economic dividend and that work is not highlighted in the synthesis. 
Three broad themes are addressed 
1. Immigration and diversity – understanding population trends 
2. [Re] conceptualising ethno-demographic diversity in Aotearoa – Tangata whenua perspectives 
3. Diversity in context – in different settings and over time 
The report concludes with four high-level insights 
1. Immigration policy needs to re-examine its position in relation to Tiriti o Waitangi where any Crown partnership relationship is currently lacking. 
2. Despite social cohesion being a negotiated term, its use as a framing for the impacts of migration on both the host country and individual migrant lives is underpinned by its use in the Royal Commission of Inquiry into the terrorist attack on Christchurch mosques on 15 March 2019 and is preferable to the concept of a diversity dividend.1 
3. While ethnocultural diversity is the default for ‘diversity dividend’ research, the concept of the social organisation of difference has broader relevance to social justice-oriented policy development.2 
4. The use of wide range of different methodologies is vital for the production of wellevidenced, theory-informed strategies and policies.

year: 2021