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MULTIVARIATE NORMALITY AND A BOND RATING DECISION MODEL *
Author(s) -
Watson Collin J.,
Stock Duane,
Watson Kent D.
Publication year - 1983
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1983.tb00203.x
Subject(s) - multivariate statistics , normality , univariate , econometrics , multivariate normal distribution , multivariate analysis , linear discriminant analysis , statistics , mathematics
An assumption of multivariate normality for a decision model is validated in this paper. Measurements for the independent variables of a bond rating model were taken from a sample of municipal bonds. Three methods for examining both univariate and multivariate normality (including normal probability plots) are described and applied to the bond data. The results imply, after applying normalizing transformations to four of the variables, that the data reasonably approximate multivariate normality, thereby validating a distributional requirement of the discriminant‐analysis‐based decision model. The methods described in the paper may also be used by others interested in examining multivariate normality assumptions of decision models.