Financial Applications of the Mahalanobis Distance
Applied Economics and Finance, 1(2), p. 71-77
Posted: 19 Aug 2013 Last revised: 5 Sep 2015
Date Written: 2014
We describe existing and potential financial applications of the Mahalanobis distance. After a short motivation and a discussion of important properties of this multivariate distance measure, we classify its applications in finance according to the source and nature of its input parameters. Examples illustrate the usefulness of these applications of the Mahalanobis distance for financial market participants.
Keywords: Mahalanobis distance, Financial turbulence, Multivariate distance
JEL Classification: C46, C52
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