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Cross-Sectional Analysis through Rank-based Dynamic Portfolios

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Author Info

  • Monica Billio

    ()
    (Università Ca' Foscari of Venice - Department of Economics)

  • Ludovic Calès

    ()
    (HEC - University of Lausanne, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

  • Dominique Guegan

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

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.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00707430.

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Date of creation: May 2012
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Handle: RePEc:hal:cesptp:halshs-00707430

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00707430
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Related research

Keywords: Finance; continuous time random walk; cross-section analysis; rank-based models; momentum.;

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  1. Billio, Monica & Calès, Ludovic & Guégan, Dominique, 2011. "Portfolio symmetry and momentum," European Journal of Operational Research, Elsevier, vol. 214(3), pages 759-767, November.
  2. Shiling Ruan & Steven MacEachern & Thomas Otter & Angela Dean, 2008. "The Dependent Poisson Race Model and Modeling Dependence in Conjoint Choice Experiments," Psychometrika, Springer, vol. 73(2), pages 261-288, June.
  3. K. Rouwenhorst, 1996. "International Momentum Strategies," Yale School of Management Working Papers ysm36, Yale School of Management, revised 01 Feb 2008.
  4. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
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