Financial distress prediction using support vector machines: Ensemble vs. individual

Financial distress prediction (FDP) is of great importance to both inner and outside parts of companies. Though lots of literatures have given comprehensive analysis on single classifier FDP method, ensemble method for FDP just emerged in recent years and needs to be further studied. Support vector machine (SVM) shows promising performance in FDP when compared with other single classifier methods. The contribution of this paper is to propose a new FDP method based on SVM ensemble, whose candidate single classifiers are trained by SVM algorithms with different kernel functions on different feature subsets of one initial dataset. SVM kernels such as linear, polynomial, RBF and sigmoid, and the filter feature selection/extraction methods of stepwise multi discriminant analysis (MDA), stepwise logistic regression (logit), and principal component analysis (PCA) are applied. The algorithm for selecting SVM ensemble's base classifiers from candidate ones is designed by considering both individual performance and diversity analysis. Weighted majority voting based on base classifiers’ cross validation accuracy on training dataset is used as the combination mechanism. Experimental results indicate that SVM ensemble is significantly superior to individual SVM classifier when the number of base classifiers in SVM ensemble is properly set. Besides, it also shows that RBF SVM based on features selected by stepwise MDA is a good choice for FDP when individual SVM classifier is applied.

Graphical abstractFigure optionsDownload full-size imageDownload as PowerPoint slideHighlights► A new FDP method based on SVM ensemble is proposed. ► Candidate SVM classifiers are trained with different kernel functions on different feature subsets of one initial dataset. ► Base classifiers are selected by two criteria: cross validation accuracy on training dataset and diversity measure. ► SVM ensemble is significantly superior to individual SVM classifier when the number of base classifiers is properly set.