Determinants of stock market classifications |
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Authors: | B. V. M. Mendes R. A. C. Martins |
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Affiliation: | 1. Institute of Mathematics/COPPEAD Graduate School of Business - UFRJ, Rio de Janeiro, Brazil;2. COPPEAD Graduate School of Business - UFRJ, Rio de Janeiro, Brazil |
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Abstract: | We use discriminant analysis to describe and predict market classifications. Potential discriminators are derived from relevant characteristics of market indices, in particular from the returns’ volatility. Using a training data set, an initial screening on the predictors is carried out and a model-based simple rule is constructed with 96.6% of correct classifications. 10 new markets are allocated to one of the previously defined groups: Developed, Emerging, or Frontier, with only one misclassification. The quantitative approach was able to anticipate classification reviews. |
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Keywords: | Discriminant analysis developed emerging frontier markets GARCH models |
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