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Determinants of stock market classifications

B. V. M. Mendes and R. A. C. Martins

Applied Economics Letters, 2018, vol. 25, issue 17, 1244-1249

Abstract: We use discriminant analysis to describe and predict market classifications. Potential discriminators are derived from relevant characteristics of market indices, in particular from the returns’ volatility. Using a training data set, an initial screening on the predictors is carried out and a model-based simple rule is constructed with 96.6% of correct classifications. 10 new markets are allocated to one of the previously defined groups: Developed, Emerging, or Frontier, with only one misclassification. The quantitative approach was able to anticipate classification reviews.

Date: 2018
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