Stock Selection with Principal Component Analysis

We propose a stock selection method that is based on a variable selection method used with principal component analysis. We applied our method to stocks in the ASX200 and show that a portfolio of as little as 15 stocks can closely replicate the behaviour of the index. We show that the number of stocks required to form a diversified portfolio is not constant across time but varies with market conditions.

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Year of publication:	2015-02-03
Authors:	Yang, Libin ; Rea, William ; Rea, Alethea
Institutions:	Department of Economics and Finance, College of Business and Economics
Subject:	Principal component analysis \| stock selection \| diversification \| stock portfolios

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Extent:	application/pdf
Series:	Working Papers in Economics.
Type of publication:	Book / Working Paper
Notes:	30 pages
Classification:	G11 - Portfolio Choice
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011166615