MULTIVARIATE NORMALITY AND A BOND RATING DECISION MODEL*

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Abstract
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.