Cross-Sectional Analysis Through Rank-Based Dynamic Portfolios
Ca Foscari University of Venice - Department of Economics
Paris School of Economics - Université Paris-1 Panthéon-La Sorbonne; University of Lausanne - Institute of Banking and Finance (IBF); University of Venice - Department of Economics
Universite Paris 1 Pantheon-Sorbonne
June 4, 2012
CES Working Paper No. 2012-36
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 multivariate 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.
Number of Pages in PDF File: 28
Keywords: finance, continuous time random walk, cross-section analysis, rank-based models, momentum
JEL Classification: C31, C46, C58working papers series
Date posted: June 4, 2012
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