I am in the process of building a customer attrition model on retail customers of saving account for a bank. The target variable i am defining consists of two components - 1. Hard Attrition : Bank loses the account completely. 2. 80% balance drop within the performance period of last 12 months. My question - Can i take balance variables as independent variables? By the balance variables, i mean - Last Balance, Average balance in 3 months, in 6 months, 9 months and 12 months. %Change Balance in last 3 months, 6 months, 9 and 12 months. My concern - These variables indirectly seem to be a part of dependent variable. Am i correct? Or i am thinking in wrong direction? I have seen these balance variables as important predictors in the model.
The balance variables will by definition be related to the variable so in my opinion they won't be good predictors. Obviously if someone has a major drop they're likely to be in the 80% group...that being said, time series analysis does allow for this type of modelling so you may want to look into some time series methods of analysis.
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