A Study on the Comovement of Industry Default

Abstract

This paper studies the comovement of industry defaults among listed companies. Rank correlation coefficients of Spearman's rho and Kendall's tau measure the concordance of default. These non-parametric coefficients do not require distributional assumptions and are easily used even with less data and extreme values. This study predicts a future financial crisis by looking at the comovement of industry defaults. We expect our analyses will aid market participants (including company executives) in making investment or risk management decisions.