Statistical and computational techniques for extraction of underlying systematic risk factors: a comparative study in the Mexican Stock Exchange

Rogelio Ladrón de Guevara Cortés (), Salvador Torra Porras () and Enric Monte Moreno ()

Revista Finanzas y Politica Economica, 2021, vol. 13, issue 2, 513-543

Abstract: This paper compares the dimension reduction or feature extraction techniques, e.g., Principal Component Analysis, Factor Analysis, Independent Component Analysis and Neural Networks Principal Component Analysis, which are used as techniques for extracting the underlying systematic risk factors driving the returns on equities of the Mexican Stock Exchange, under a statistical approach to the Arbitrage Pricing Theory. We carry out our research according to two different perspectives. First, we evaluate them from a theoretical and matrix scope, making a parallelism among their particular mixing and demixing processes, as well as the attributes of the factors extracted by each method. Secondly, we accomplish an empirical study in order to measure the level of accuracy in the reconstruction of the original variables.

Keywords: Neural networks principal component analysis; Independent component analysis; Factor analysis; Principal component analysis; Mexican stock exchange (search for similar items in EconPapers)
JEL-codes: C45 G12 G15 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:col:000443:019744

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