 Financial Clustering in Presence of Dominant MarketsR. Gargano and Edoardo Otranto Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia Abstract: Clustering financial time series is a recent topic of statistical literature with important fields of applications, in particular portfolio composition and risk evaluation. The risk is generally linked to the volatility of the asset, but its level of predictability also plays a basic role in investment decisions. In particular, the classification of a certain asset could be linked to its dependence on the volatility of a dominant market - movements in the volatility of the dominant market can provide similar movements in the volatility of the asset and its predictability would depend on the strength of this dependence. Working in a model based framework, we base the classification of the volatility of an asset not only on its volatility level, but also on the presence of spillover effects from a dominant market, such as the U.S. one, and on the similarity of the dynamics of the asset and the dominant market. The method is carried out using an extended version of the Multiplicative Error Model and is applied to a set of European assets. Keywords: MEM; unconditional volatility; spillover effect; common dynamics; AR distance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:201318 Access Statistics for this paper More papers in Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.