Discrete time, discrete state latent Markov modelling for assesing and predicting household acquisitions of financial products

L.J. Paas, J.K. Vermunt, T.H.A. Bijmolt

Research output: Contribution to JournalArticleAcademic

Abstract

The paper demonstrates application of the latent Markov model for assessing developments by individuals through stages of a process. This approach is applied by using a database on ownership of 12 financial products and various demographic variables. The latent Markov model derives latent classes, representing household product portfolios, and shows the relationship between class membership and household demographics. The analysis provides insight into switching between the latent classes, reflecting developments of individual household product portfolios, and the effects of demographics on such switches. Based on this, we formulate equations to predict future acquisitions of financial products. The model accurately predicts which product a specific household unit acquires next, for most of the products. © 2007 Royal Statistical Society.
Original languageEnglish
Pages (from-to)955-974
Number of pages20
JournalJournal of the Royal Statistical Society. Series A. Statistics in Society
Volume170
Issue number4
DOIs
Publication statusPublished - 2007

Fingerprint

Dive into the research topics of 'Discrete time, discrete state latent Markov modelling for assesing and predicting household acquisitions of financial products'. Together they form a unique fingerprint.

Cite this