Cross-Sectional Analysis through Rank-based Dynamic Portfolios

Monica Billio, Ludovic Calès and Dominique Guegan ()
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Dominique Guegan: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: The aim of this paper is to study the cross-sectional effects present in the market using a new framework based on graph theory. Within this framework, we represent the evolution of a dynamic portfolio, i.e. a portfolio whose weights vary over time, as a rank-based factorial model where the predictive ability of each cross-sectional factor is described by a variable. Practically, this modeling permits us to measure the marginal and joint effects of different cross-section factors on a given dynamic portfolio. Associated to a regime switching model, we are able to identify phases during which the cross-sectional effects are present in the market.

Keywords: Finance; continuous time random walk; cross-section analysis; rank-based models; momentum.; Modèle à base de rang; analyse transversale; Momentum; Marche aléatoire en temps continu. (search for similar items in EconPapers)
Date: 2012-05
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00707430v1
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Published in 2012

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Working Paper: Cross-Sectional Analysis through Rank-based Dynamic Portfolios (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00707430

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