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Stock Market Indices: A Principal Components Analysis

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  • George J. Feeney
  • Donald D. Hester

Abstract

This paper investigates a widely quoted stock market index, the Dow Jones Industrial Average (hereafter DJI), and constructs some alternative indices. Their performances are compared to the DJI. The question of applying the indices to problems of portfolio selection is explored when investors' utility functions are quadratic in the rate of return. By constructing indices from data collected in different time periods, some conclusions are drawn about the constancy of price and rate of return covariance and correlation matrices of the 30 Dow Jones Industrial stocks over time.

Suggested Citation

  • George J. Feeney & Donald D. Hester, 1964. "Stock Market Indices: A Principal Components Analysis," Cowles Foundation Discussion Papers 175, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:175
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    File URL: http://cowles.yale.edu/sites/default/files/files/pub/d01/d0175.pdf
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    Cited by:

    1. José Dias Curto & José Castro Pinto & Joao Eduardo Fernandes, 2006. "World Equity Markets: A New Approach for Segmentation (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 56(7-8), pages 344-360, July.

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