Determinants of stock market classifications

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 m...

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Bibliographic Details
Published in:Applied economics letters 2018-10, Vol.25 (17), p.1244-1249
Main Authors: Mendes, B. V. M., Martins, R. A. C.
Format: Article
Language:English
Subjects:
Classification
developed
Discriminant analysis
Economic theory
Economics
emerging
frontier markets
GARCH models
Securities markets
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Summary: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.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2017.1414927