Latent Class Analysis for Portfolio Choice

Costa, Michele ; De Angelis, Luca (2010) Latent Class Analysis for Portfolio Choice.
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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
Costa, Michele
De Angelis, Luca
Latent variables, Latent class analysis, Statistical analysis of financial data, Financial portfolio choice
Deposit date
16 Dec 2010 11:40
Last modified
16 May 2011 12:15

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