IDEAS home Printed from https://ideas.repec.org/a/spt/apfiba/v4y2014i1f4_1_13.html
   My bibliography  Save this article

Measuring the Dependency between Securities via Factor-ICA Models

Author

Listed:
  • Changho Han

Abstract

This paper proposes a new method for measuring the dependency between securities. Applying independent component analysis to the return data of the whole component securities in a universe, independent factors composing the returns are extracted. Reconstructing return data of individual component security based on such factors, we find that each security has a unique factor hierarchy. A comparative analysis of the hierarchies can find dependence structures between securities. Empirical studies show that the new method outperforms old measures based on correlation, and that it reveals very delicate dependence structures which otherwise remain hidden. Useful examples of applying it to the portfolio or risk management are also provided.

Suggested Citation

  • Changho Han, 2014. "Measuring the Dependency between Securities via Factor-ICA Models," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 4(1), pages 1-13.
    • Handle: RePEc:spt:apfiba:v:4:y:2014:i:1:f:4_1_13
    as

    Download full text from publisher

    File URL: http://www.scienpress.com/Upload/JAFB%2fVol%204_1_13.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spt:apfiba:v:4:y:2014:i:1:f:4_1_13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Eleftherios Spyromitros-Xioufis (email available below). General contact details of provider: http://www.scienpress.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.