Costa, Michele ; De Angelis, Luca
(2010)
Latent Class Analysis for Portfolio Choice.
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Abstract
We exploit the potential of latent class analysis in order to propose an innovative framework for financial portfolio development. By stressing the latent nature of the most important financial variables, the expected return and the risk, we are able to introduce a methodological dimension in relevant steps of portfolio analysis. First, we provide a test for the number of possible investment choices. Second, we are able to include in the decision process also the information related to economic and financial environment. Our results lead to an improvement in the risk management methods and, if compared to traditional portfolio strategies, allow us to achieve better investment opportunities.
Abstract
We exploit the potential of latent class analysis in order to propose an innovative framework for financial portfolio development. By stressing the latent nature of the most important financial variables, the expected return and the risk, we are able to introduce a methodological dimension in relevant steps of portfolio analysis. First, we provide a test for the number of possible investment choices. Second, we are able to include in the decision process also the information related to economic and financial environment. Our results lead to an improvement in the risk management methods and, if compared to traditional portfolio strategies, allow us to achieve better investment opportunities.
Document type
Article
Creators
Keywords
Latent variables, Latent class analysis, Statistical analysis of financial data, Financial portfolio choice
Subjects
DOI
Deposit date
16 Dec 2010 11:40
Last modified
16 May 2011 12:15
URI
Other metadata
Document type
Article
Creators
Keywords
Latent variables, Latent class analysis, Statistical analysis of financial data, Financial portfolio choice
Subjects
DOI
Deposit date
16 Dec 2010 11:40
Last modified
16 May 2011 12:15
URI
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