Portfolios and the market geometry

Samuel Eleutério, Tanya Araújo and Rui Mendes

No 2012/09, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: A geometric analysis of the time series of returns has been performed in the past and it implied that the most of the systematic information of the market is contained in a space of small dimension. Here we have explored subspaces of this space to find out the relative performance of portfolios formed from the companies that have the largest projections in each one of the subspaces. It was found that the best performance portfolios are associated to some of the small eigenvalue subspaces and not to the dominant directions in the distances matrix. This occurs in such a systematic fashion over an extended period (1990-2008) that it may not be a statistical accident.

Keywords: Return correlations; Market Geometry; Portfolios (search for similar items in EconPapers)
Date: 2012-02
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Related works:
Working Paper: Portfolios and the market geometry (2011)
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