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 stock’s classification and to improve the reliability of sector portfolio diversification.
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© 2011 Springer-Verlag Berlin Heidelberg
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Costa, M., De Angelis, L. (2011). Sector Classification in Stock Markets: A Latent Class Approach. In: Fichet, B., Piccolo, D., Verde, R., Vichi, M. (eds) Classification and Multivariate Analysis for Complex Data Structures. Studies in Classification, Data Analysis, and Knowledge Organization. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-13312-1_23
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DOI: https://doi.org/10.1007/978-3-642-13312-1_23
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