Projection pursuit based generalized betas accounting for higher order co-moment effects in financial market analysis

07/31/2019
by   Sven Serneels, et al.
0

Betas are possibly the most frequently applied tool to analyze how securities relate to the market. While in very widespread use, betas only express dynamics derived from second moment statistics. Financial returns data often deviate from normal assumptions in the sense that they have significant third and fourth order moments and contain outliers. This paper targets to introduce a way to calculate generalized betas that also account for higher order moment effects, while maintaining the conceptual simplicity and interpretability of betas. Thereunto, the co-moment analysis projection index (CAPI) is introduced. When applied as a projection index in the projection pursuit (PP) framework, generalized betas are obtained as the directions optimizing the CAPI objective. A version of CAPI based on trimmed means is introduced as well, which is more stable in the presence of outliers. Simulation results underpin the statistical properties of all projections and a small, yet highly illustrative example is presented.

READ FULL TEXT

page 1

page 2

page 3

page 4

research
09/09/2021

Kurtosis-based projection pursuit for matrix-valued data

We develop projection pursuit for data that admit a natural representati...
research
03/30/2018

Log-moment estimators for the generalized Linnik and Mittag-Leffler distributions with applications to financial modeling

We propose formal estimation procedures for the parameters of the genera...
research
02/01/2019

Using tours to visually investigate properties of new projection pursuit indexes with application to problems in physics

Projection pursuit is used to find interesting low-dimensional projectio...
research
12/22/2021

Refining Invariant Coordinate Selection via Local Projection Pursuit

Independent component selection (ICS), introduced by Tyler et al. (2009,...
research
09/01/2021

On Generalized Random Environment INAR Models of Higher Order: Estimation of Random Environment States

The behavior of a generalized random environment integer-valued autoregr...
research
10/17/2022

Bayesian Projection Pursuit Regression

In projection pursuit regression (PPR), an unknown response function is ...
research
05/10/2020

A Robust Matching Pursuit Algorithm Using Information Theoretic Learning

Current orthogonal matching pursuit (OMP) algorithms calculate the corre...

Please sign up or login with your details

Forgot password? Click here to reset