Ritika Sinha

Country Risk Analysis

Does Latin America fit the mould?

Introduction
Sovereign default risk (more commonly referred to as Country risk) is the risk of non-repayment of
borrowed loans or external debt. It arises due to differential economic structures and policies, politics and
currencies in international transactions. The motivation for this paper was to check if a predictive
econometric model (an early warning system) can be built to forewarn investors that a country might
default on its foreign debt. The paper attempts to build a qualitative model for Latin America using
countries’ macroeconomic fundamentals, liquidity and solvency positions, socio-political risk factors and
their history of default.

Latin America has experienced several debt crises in the last three decades. The debt crises of the 1980’s
and the currency crises of the 1990’s have, in the new millennium, evolved into a newer, more unique
form of default risk, arising out of political will or maybe even an unwillingness to repay sovereign debt.
Country risk analysts have used both qualitative and quantitative econometric models, ratings, market
indicators like bond and CDS spreads to predict these events. However, the most sophisticated global
models tend to fail when applied to Latin American countries. Although each of these countries is unique,
the common threads that bind them together are their history of debt acquisition and servicing, political
instability and volatile periods of growth and inflation.

In the late 1970’s and early 1980’s, after the collapse of the Bretton-Woods system and the excess supply
of capital due to the oil-price shocks, many Latin American countries saw an immense increase in foreign
investment, borrowing heavily from international commercial banks. Most of the funds thus acquired
were used for internal growth and expansion, to bridge trade balances and for debt servicing. In the early
1980’s foreign investors realized that Latin American debt had become unsustainable and capital flight
began to occur, especially from the private sector. Similar to early crises in this region, this one too was
caused by commodity price shocks, instability in financial markets worldwide and global recessions.
After Mexico defaulted on its debt payment in 1982, the ‘Tequila effect’ was felt by most other Latin
American countries, causing a number of instances of sovereign default. Countries like Brazil, Chile,
Argentina, Dominican Republic, Ecuador, Paraguay, Uruguay, Venezuela and others defaulted on their
debt payments during these years.
 Ritika Sinha

The 1990’s saw a relatively large number of cases of debt-restructuring, instead of outright default. Most
countries made changes to their debt-payment schedules and conditions when they felt they would be
unable to pay, following the currency crises that unfolded in this region. Starting from 1990 (Venezuela,
Mexico, Chile), these actions continued till 1995-96 (Brazil, Ecuador, Peru).
The new millennium started with Argentina having one of the worst currency and debt crises: burgeoning
debt, coupled with hyperinflation and chaos in the financial system. More recent instances of debt-
restructuring have been Uruguay (2003), Dominican Republic (2005) and the outright refusal to repay
‘illegitimate’ debt by Ecuador (2008).

Literature Review
Various qualitative, quantitative and market-based models have been tried in theoretical and empirical
frameworks to forewarn investors of a country’s default risk. Cantor and Packer (1996) tried to determine
a model explaining rating decisions and changes undertaken by two major rating agencies: Moody’s and
Standard and Poor. They include mainly macroeconomic variables like per capita income, GDP growth,
inflation, fiscal balance, external balance, an indicator of economic development and default history to
find that the model is a good indicator of rating changes. Ciarlone and Trebeschi use event-study analysis
to build an early warning system of default using probit estimation, for both binomial and multinomial
models. The variables used in the binomial model include interest payments on external debt scaled to
international reserves, the degree of openness to international trade, export growth rate, ratios of total debt
and short term debt to GDP and the ratio of international reserves to total debt. The models have good
out-of-sample forecastability and are able to signal a negative event (default) 72% of the times, with 36%
false alarms. They also try to use data from market instruments to predict the occurrence of an event in
the immediate term. According to Manasse and Roubini (2005), factors influencing the probability of a
debt crisis include measures of solvency and liquidity in addition to macroeconomic controls, such as real
growth, inflation, exchange rate overvaluation, and the fiscal balance. They use the binary recursive tree
methodology to establish certain ‘rules of thumb’ for sovereign debt crises. Manasse, Roubini, and
Schimmelpfenning (2003) estimate a logit model of sovereign debt crisis that includes a large set of
emerging market economies for the period 1970–2002. They identify macroeconomic variables reflecting
insolvency, illiquidity and other domestic and external macroeconomic factors that predict a debt crisis
episode one year in advance. Their model predicts about three quarters of all crises entries while sending
few false alarms. In addition to macroeconomic variables, Moody’s econometric model also takes into
account indicators of government effectiveness and corruption.
 Ritika Sinha

Model Description

The econometric model of country risk is:

Def = β0 + β1hist + β2elec + β3growth + β4inf + β5tdgdp + β6stdex + β7dsr + β8polrit + β9civlib + ε

where: def = 1 if a country defaults and 0 if it doesn’t

past = number of past instances of default
elec = number of years till the next presidential election
growth = GDP growth rate (annual percent change)
inf = inflation rate (annual GDP deflator)
tdgdp = ratio of total debt to GDP (%)
stdex = ratio of short term debt to exports (%)
dsr = debt service payments as a percentage of exports (%)
polrit = political rights index
civlib = civil liberties index

• Default: The left hand side variable to be tested in this model is a binary variable which takes
values (0, 1). For the purpose of this paper, if a country undergoes a sovereign default or debt-
restructuring, it is classified as a default and def equals 1 (0 otherwise). The model aims to
generate a set of probabilities that a country will default in any given year, which can then be
used to predict, out of sample.
• Past: This indicates the number of times a country has ‘defaulted’ since 1978. It is expected that a
country that has defaulted once (or more) is more likely to default than one that has no such
history.
Macroeconomic Indicators:
• Growth: An economy with a higher GDP growth rate is expected to be able to generate funds to
meet debt requirements more easily than a stagnant one.
• Inf: Inflation is used as a macroeconomic indicator of the economy in general and as a proxy for
government policies. A high inflation rate indicates the central government’s unwillingness to
raise public finances through taxation, thus adding to sovereign risk.
Measures of liquidity and solvency:
• Tdgdp: The ratio of total debt to GDP (current prices USD) indicates how heavily the country
relies on external funds. This is a measure of long-term solvency. An increasing ratio signals that
long term debt-servicing might become problematic.
 Ritika Sinha

• Stdex: The ratio of short-term debt to exports (goods and services) is a measure of liquidity in the
short run. This is expected to be more significant than the previous ratio in determining the
probability that a country will default in the immediate term. It measures the extent to which
earning from exports will cover short term debt.
• DSR: The debt service ratio measures the total amount of interest + amortization payment made
by a country each year, out of its export earnings. Intuitively, a lower ratio shows that the export
earnings (or reserves) of a country are sufficient to cover its debt service in the short run.
Socio-Political Indicators:
• Elec: The number of years till the next presidential election is an important indicator, especially
for the politically charged and unstable Latin American countries. Studies have shown the impact
of expected election results, and different amounts of risk generated by left-wing incumbents as
against right-wing challengers. This variable is used as a proxy for political instability, alongside
other indicators.
• Polrit = The Political Rights index (Freedom House) measures the degree of freedom in the
electoral process, political pluralism and participation, and functioning of government.
Numerically, political rights are rated on a scale of 1 to 7, with 1 representing the most free and 7
representing the least free. A higher degree of freedom and political stability would reduce any
sovereign risk faced by investors.
• Civlib = The Civil Liberties index (Freedom House) measures freedom of expression, assembly,
association, and religion. These are rated on a scale of 1 to 7, where 1 is the most free and 7 is
the least free. If civil liberties are curtailed, it is expected to increase the risk of political violence
and instability.

The paper uses annual data for 15 Latin American countries for the years 1980 to 2006, thus creating a
panel dataset of 405 observations. These countries have had significant debt problems over the last three
decades: Argentina, Bolivia, Brazil, Chile, Costa Rica, Dominican Republic, Ecuador, Honduras, Mexico,
Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela.
The data for default dates were taken from Laeven and Valencia (IMF Working Paper 2008). The data
for macroeconomic variables and solvency ratios are extracted from UNdata, World Development
Finance (World Bank) and Economist Intelligence Unit. Presidential election data is sourced from the
International Institute for Democracy and Electoral Assistance while the socio-political indexes are
published by Freedom House.
 Ritika Sinha

Description and Interpretation of Results

Linear Probability Model

The first step is to estimate a linear probability model using ordinary least squares. The model thus
generated has an R-squared of 0.0746. Past instances of default and the economy’s GDP growth rate are
the only variables that are significant. The marginal effects indicate that one additional instance of past
default will decrease the probability of default by 0.071; while a 1% increase in the GDP growth rate will
decrease the probability of default by 0.97%. Other variables like stdex and the socio-political indicators
are found to be insignificant. Their coefficients and signs are discussed later. Although the linear
probability model can be a good approximation, the fitted values using the linear probability model
indicate why this model is limited in the case of binary choice variables and probabilistic distributions.
More than 30 fitted values take a negative value, which is meaningless in probabilistic terms (negative
probability that a country will default in any given year). The summarized linear prediction (Table 2)
shows that the lowest 1% of sample observations have a probability of default of -0.1105, while the
lowest 25% have a probability of -0.1120.

Index Models
The index models are an improvement on the linear (ordinary least squares and generalized least squares)
models. The functional form restricts the binary choice model as it maps the [0, 1] index onto the
probability distribution using maximum likelihood estimation techniques. The cumulative density
function may take the form of a standardized logistic distribution (Logit) or a standard normal distribution
(Probit), both of which are tested here.

Logit Model
Table 3 shows the coefficients and Z statistics from the logistic regression. However, we are more
interested in the marginal effect of the independent variables on the dependent variable. These marginal
effects are calculated as the derivative of the dependent variable with respect to each independent
variable, holding others constant at their mean values. The coefficients and mean values at which the
marginal effects are measured are reported in Table 4. The logit model has a pseudo R-squared of 0.1196
and the maximized log likelihood is -112.98201
As shown by the linear probability model, the only variables that are significant are past and growth. The
number if past defaults has a negative marginal effect as β1 = -0.0609. For every additional year of default
in the past, the country is less likely to default in the current period by 0.0609. This is counterintuitive to
the model’s expectation that a country that has defaulted in the past would be more open to such a course
 Ritika Sinha

of action in the present. However, studies of cost-benefit analyses have now emerged as a way to
determine whether or not a country should default (DePaoli, Hoggarth and Saporta). In the current global
financial markets especially, countries stand to lose not only their reputation, but also future lines of
credit, aid and support from international organizations, thus making the costs of default much higher
than the benefit from not paying the debt funds. Countries that have realized this in the past will thus try
to avert another default that will reduce their credibility.
The other significant variable is growth. When the GDP growth rate increases by 1%, it will cause a
0.64% reduction in the probability of default. This result, as expected, shows that countries that are
growing at a faster pace will be able to sustain debt payments in the long run. GDP growth is associated
with a larger capital base and greater resources that can be used to service debt if necessary. Other
variables that have relatively large Z statistics but are not significant include the civil liberties index
(negative sign) and the number of years to the next presidential election (negative sign). The sign of elec
depends on the type of incumbent government. A government that may not be popularly elected in the
next presidential election would be more likely to default as the elections get closer, having no qualms
about leaving its successors to solve the debt problem. In some Latin American countries, these defaults
have been condoned and even encouraged by the citizens. In such cases, the ruling party may default
(depending on public opinion) to garner popular support as the election approaches.
Surprisingly, measures of liquidity and debt ratios are not significant in determining the possibility of
default. Total debt: GDP, Short term debt: Exports and Debt Service: Exports all have relatively low Z
statistics, unlike the predictive logit models in earlier literature.

Diagnostic Tests
Goodness-of-fit
The goodness-of-fit is a deviance and Pearson chi-squared test (the adapted version is the Hosmer-
Lemeshow measure). The null hypothesis of no lack of fit is rejected when the observed valued deviate
from the expected values. In the logit model, the Pearson chi-squared value is 535.06, so we reject the
null hypothesis and conclude that the model does not fit the data well. Despite this result, the pseudo R-
squared is 0.1196, showing that the model is significantly different from an unrestricted regression on a
constant.

Classification Table
Using threshold values of 0.5 to predict default, the model is able to signal only 2 defaults out of 39. Thus
the sensitivity (or correct classification of true default) was only 5.13%. However, the model’s specificity
(where it did not signal a default when there was none) was 99.45%. The model’s fitted values are
 Ritika Sinha

90.37% correctly classified. The true defaults correctly classified are Costa Rica (1982) and Uruguay
(1983). The model also signaled a default for Uruguay in 1982, showing its potential as an early warning
system. The results of the classification test are graphed by the receiver operating characteristic curve
(ROC), shown in Figure 1. True positive results (sensitivity) are graphed in the upper left hand corner
while the lower right hand corner shows false positive results (1-specificity). The area under the ROC
curve is 0.7382, showing that the model is a good predictor, especially of false negative results.

Probit Model
The results from the probit model are similar to those generated by the logit and linear regression models.
The only two variables that are significant are growth (GDP growth rate) and past (number of past
instances of default). The coefficients and Z test results for the probit regression and the marginal effects
after probit are reported in Tables 7 and 8, respectively. The model has a maximum log likelihood of -
114.17093 and its pseudo R-squared is 0.1103(marginally lower than the logit model). The coefficients of
the marginal effects have the same signs and intuition as in the logit model. The marginal effect of past is
negative. With a one unit increase (one year) in the past record of defaults, the probability of default by a
country decreases by 0.0629. Also, as the GDP growth rate increase by 1%, the probability of default
decreases by 0.72%.

Diagnostic Tests
Goodness-of-fit
Compared to the Pearson chi-squared statistic from the diagnostic of the logit model (535.06), the probit
model has a slightly higher chi-sqaured value of 538.83. This indicates that the probit model has a greater
‘lack of fit’ than the logit specification which turns out to be the better model.

Classification Table
Using a threshold value of 0.5 to signal a default, the probit model is able to correctly signal only one true
default out of 39 (Uruguay 1983). The sensitivity of the probit model was only 2.56% while the
specificity was 100%. The model’s fitted values are thus 90.62% correctly classified, only slightly better
than the logit model because it appears to be more cautious. The ROC curve shows the distribution of true
positive and false positive results (sensitivity and 1-specificity), given in Figure 2. The area under the
ROC curve for probit is the same as before: 0.7381.
 Ritika Sinha

Conclusion
Most statistical packages use 0.5 as a preset threshold value for determining the binary outcome (signal)
from the fitted probabilities. Extending the above Logit specification using a threshold value to of 0.3, the
model is able to identify 19 instances of sovereign default, of which only 3 are false alarms. Ciarlone and
Trebeschi have addressed the issue of choosing an optimal threshold value in their paper. According to
them, the goodness-of-fit and the model’s in-sample predictability depend on the particular cut-off level
above which the predicted crisis probability would send a signal that a negative event will occur. The
question is how this optimal threshold should be calculated: the lower the threshold, the more signals the
model will send, with the danger of sending many false alarms relative to crises that would never occur;
the higher the threshold, the lower the numbers of signals, with the risk of not being able to capture the
onset of a crisis.
The logit and probit models applied here do a much better job of estimation than the linear probability
(least squares) model. The results for all three models are similar: very few variables are significant and
the variables included do not have a very high R-squared or pseudo R-squared. The classification and
goodness-of-fit tests indicate that the model is not very good at signaling events of sovereign default.
Both the logit and probit specifications appear to be very cautious in their approach. Their high
proportions of correct classification arise from the fact that they do not signal any false positives either.
This qualitative model uses annual data from a small subset of available macroeconomic indicators. A
possible improvement could use quarterly data for macroeconomic and better socio-political indicators,
using some risk-based instruments to capture market sentiments too. Such a short term model may be able
to forecast defaults better.
 Ritika Sinha

References
Bouchet, Michel Henry, Clark Ephraim, Groslambert, Bertrand, ‘Country Risk Assessment: A Guide to
Global Investment Strategy’
Cantor, Richard Martin and Packer, Frank, ‘Determinants and Impact of Sovereign Credit Ratings’,
October 1996. Economic Policy Review, Vol. 2, No. 2, October 1996. Available at SSRN:
http://ssrn.com/abstract=1028774
Ciarlone, Alessio & Trebeschi, Giorgio, 2005, ‘Designing an early warning system for debt crises,’
Emerging Markets Review, Elsevier, vol. 6(4), pages 376-395, December.
De Paoli, Bianca and Hoggarth, Glenn, ‘Costs of Sovereign Default’, Bank of England Quarterly Bulletin,
Fall 2006. Available at SSRN: http://ssrn.com/abstract=932526
Earth Trends, World Resources Institute, http://earthtrends.wri.org/index.php
Election Guide, http://www.electionguide.org/index.php
International Institute for Democracy and Electoral Assistance, http://www.idea.int/vt/
Laeven, Luc A. and Valencia, Fabian V., ‘Systemic Banking Crises: A New Database’ (September 2008).
IMF Working Papers, Vol. , pp. 1-78, 2008. Available at SSRN: http://ssrn.com/abstract=1278435
Moody’s Investors Service, Sovereign Defaults and Interference: Perspectives on Government Risks,
August 2008
Oxford Latin American Economic History Database, http://oxlad.qeh.ox.ac.uk/search.php
Roubini, Nouriel and Manasse, Paolo, ‘Rules of Thumb for Sovereign Debt Crises’ (March 2005). IMF
Working Paper No. 05/42. Available at SSRN: http://ssrn.com/abstract=874264
Theberge, Alexander, ‘The Latin American Debt Crisis of the 1980s and its Historical Precursors’.
Available at: http://www.columbia.edu/~ad245/theberge.pdf
 Ritika Sinha

Tables and Figures

Table 1: Linear Probability Model - OLS
def Coef. Std. Err. t P>t [95% Conf. Interval]
past -.0709991 .0191848 -3.70 0.000 -.1087162 -.033282
elec -.0150505 .0095942 -1.57 0.118 -.0339126 .0038116
growth -.0097598 .0033415 -2.92 0.004 -.0163291 -.0031904
inf -.0000205 .0000153 -1.34 0.180 -.0000505 9.52e-06
tdgdp .000313 .0003948 0.79 0.428 -.0004631 .0010892
stdex -.0002538 .000277 -0.92 0.360 -.0007984 .0002907
dsr .0001066 .0008203 0.13 0.897 -.0015061 .0017193
polrit .0243163 .0166044 1.46 0.144 -.0083277 .0569602
civlib -.0406419 .021257 -1.91 0.057 -.0824329 .0011491
_cons .3086554 .0677271 4.56 0.000 .1755047 .4418061

Table 2: Linear prediction

Percentiles Smallest
1% -.10222 -.1374375
5% -.0410672 -.1244839
10% .00216 -.1168116 Obs 405
25% .0466172 -.1044557 Sum of Wgt. 405

50% .0956217 Mean .0962963

Largest Std. Dev. .08066
75% .1396419 .3204055
90% .197266 .3357485 Variance .006506
95% .2433925 .3436286 Skewness .1722018
99% .3129697 .3676834 Kurtosis 3.713438

Table 3: Logistic Regression

def Coef. Std. Err. Z P>Z [95% Conf. Interval]
past -.9528215 .2695133 -3.54 0.000 -1.481058 -.4245852
elec -.1673215 .121685 -1.38 0.169 -.4058196 .0711767
growth -.1006947 .0373973 -2.69 0.007 -.1739921 -.0273973
 Ritika Sinha

inf -.0004695 .0004919 -0.95 0.340 -.0014336 .0004946

tdgdp .0052837 .0050329 1.05 0.294 -.0045807 .0151481
stdex -.0037473 .0038506 -0.97 0.330 -.0112943 .0037997
dsr -.000326 .0109384 -0.03 0.976 -.021765 .0211129
polrit .1929066 .1978199 0.98 0.329 -.1948134 .5806265
civlib -.392933 .2626325 -1.50 0.135 -.9076833 .1218173
_cons .0155766 .7924625 0.02 0.984 -1.537621 1.568775

Table 4: Marginal effects from Logit Number of obs = 405

chi2(9) = 33.26
Prob > chi2 = 0.0001
Log Likelihood = -112.98201 Pseudo R2 = 0.1196
def Coef. Std. Err. Z P>Z [95% Conf. Interval]
past -.0609879 .0162062 -3.76 0.000 -.0927514 -.0292243
elec -.0107099 .0077841 -1.38 0.169 -.0259664 .0045467
growth -.0064452 .002397 -2.69 0.007 -.0111433 -.0017472
inf -.0000301 .0000305 -0.99 0.324 -.0000897 .0000296
tdgdp .0003382 .0003187 1.06 0.289 -.0002864 .0009628
stdex -.0002399 .0002448 -0.98 0.327 -.0007197 .0002399
dsr -.0000209 .0007001 -0.03 0.976 -.0013931 .0013514
polrit .0123475 .01279 0.97 0.334 -.0127204 .0374153
civlib -.0251507 .0169301 -1.49 0.137 -.0583331 .0080317
_cons .000997 .0507047 0.02 0.984 -.0983823 .1003764
Marginal effects evaluated at
past elec growth inf tdgdp stdex dsr polrit civlib _cons
x 1.474074 1.933333 2.903457 197.886 66.82653 50.85025 27.51595 2.597531 2.960494 1

Table 5: Classification table(Logit)

True
Classified D ~D Total
+ 2 2 4
- 37 364 401
Total 39 366 405
 Ritika Sinha

Classified + if predicted Pr(D) >= .5

True D defined as def != 0
Sensitivity Pr( + D) 5.13%
Specificity Pr( -~D) 99.45%
Positive predictive value Pr( D +) 50.00%
Negative predictive value Pr(~D -) 90.77%

False + rate for true ~D Pr( +~D) 0.55%

False - rate for true D Pr( - D) 94.87%
False + rate for classified + Pr(~D +) 50.00%
False - rate for classified - Pr( D -) 9.23%
Correctly classified 90.37%

Table 6: Probit Regression

def Coef. Std. Err. Z P>Z [95% Conf. Interval]
past -.4447545 .1312674 -3.39 0.001 -.7020339 -.1874751
elec -.0800799 .0631771 -1.27 0.205 -.2039047 .0437448
growth -.050699 .0198868 -2.55 0.011 -.0896764 -.0117216
inf -.000184 .0002008 -0.92 0.359 -.0005775 .0002095
tdgdp .0024046 .002547 0.94 0.345 -.0025874 .0073965
stdex -.0018277 .0020158 -0.91 0.365 -.0057786 .0021231
dsr -.0006708 .0058474 -0.11 0.909 -.0121315 .0107899
polrit .1122079 .1055745 1.06 0.288 -.0947144 .3191302
civlib -.2213178 .1386899 -1.60 0.111 -.4931451 .0505094
_cons -.1307392 .4283431 -0.31 0.760 -.9702763 .708798

Table 7: Marginal effects from probit Number of obs = 405

chi2(9) = 26.93
Prob > chi2 = 0.0014
Log Likelihood = -114.17093 Pseudo R2 = 0.1103
def Coef. Std. Err. Z P>Z [95% Conf. Interval]
past -.0629844 .0181279 -3.47 0.001 -.0985146 -.0274543
elec -.0113406 .0089487 -1.27 0.205 -.0288797 .0061984
 Ritika Sinha

growth -.0071798 .0028237 -2.54 0.011 -.0127141 -.0016455

inf -.0000261 . 000028 -0.93 0.352 -.000081 .0000288
tdgdp .0003405 .0003593 0.95 0.343 -.0003637 .0010448
stdex -.0002588 .0002845 -0.91 0.363 -.0008165 .0002988
dsr -.000095 .0008277 -0.11 0.909 -.0017173 .0015273
polrit .0158905 .0150192 1.06 0.290 -.0135467 .0453276
civlib -.0313422 .0196595 -1.59 0.111 -.0698741 .0071898
_cons -.0185148 .0608219 -0.30 0.761 -.1377236 .100694
Marginal effects evaluated at:
past elec growth inf tdgdp stdex dsr polrit civlib _cons
x 1.474074 1.933333 2.903457 197.886 66.82653 50.85025 27.51595 2.597531 2.960494 1

Table 8: Classification table (Probit)

True
Classified D ~D Total
+ 1 0 1
- 38 366 404
Total 39 366 405
Classified + if predicted Pr(D) >= .5
True D defined as def! = 0
Sensitivity Pr( + D) 2.56%
Specificity Pr( - ~D) 100%
Positive predictive value Pr( D +) 100%
Negative predictive value Pr(~D -) 90.59%

False + rate for true ~D Pr( +~D) 0.00%

False - rate for true D Pr( - D) 97.44%
False + rate for classified + Pr(~D +) 0.00%
False - rate for classified - Pr( D -) 9.41%
Correctly classified 90.62%
 Ritika Sinha

Figure 1: ROC (Logit)

1.00

0.75

Sensitivity
0.50

0.25
ROC Logit

0.00

0.00 0.25 0.50 0.75 1.00

1 - Specificity
Area under ROC curve = 0.7382

Figure 2: ROC (Probit)

1.00
0.75
Sensitivity
0.50
0.25

ROC Probit
0.00

0.00 0.25 0.50 0.75 1.00

1 - Specificity
Area under ROC curve = 0.7381