The factor structure of financial markets: a simulation study of the Italian case
Michele Costa ()
Applied Economics Letters, 2003, vol. 10, issue 2, 83-86
This article develops a new information criterion for the analysis of the factor structure of financial markets. The new proposal is obtained by resorting to a Monte Carlo experiment, which allows one to evaluate the behaviour of different information criteria by a priori knowing the true number of unobservable factors. The financial markets factor structure is found to be different from those suggested by traditional factor analysis methods, and for the Italian stock market in particular, only two or three factors are signalled.
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