Stock indices related to specific economic sectors play a major role in portfolio diversification. Notwithstanding its importance, the traditional sector classification shows several flaws and it may not be able to properly discriminate the risk-return profile of financial assets. We propose a latent class approach in order to correctly classify the stock companies into homogenous groups under risk-return profile and to obtain sector indices which are consistent with the standard portfolio theory. Our results allow to introduce a methodological dimension in the stocks classification and to improve the reliability of sector portfolio diversification.

Sector classification in stock markets: a latent class approach

COSTA, MICHELE;DE ANGELIS, LUCA
2011

Abstract

Stock indices related to specific economic sectors play a major role in portfolio diversification. Notwithstanding its importance, the traditional sector classification shows several flaws and it may not be able to properly discriminate the risk-return profile of financial assets. We propose a latent class approach in order to correctly classify the stock companies into homogenous groups under risk-return profile and to obtain sector indices which are consistent with the standard portfolio theory. Our results allow to introduce a methodological dimension in the stocks classification and to improve the reliability of sector portfolio diversification.
Classification and Multivariate Analysis for Complex Data Structures
229
236
M. Costa; L. De Angelis
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11585/100029
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