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On the Use of Spectral Value Decomposition for the Construction of Composite Indices

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  • Luca Farnia

    (Fondazione Eni Enrico Mattei)

Abstract

High dimensional composite index makes experts’ preferences in set-ting weights a hard task. In the literature, one of the approaches to derive weights from a data set is Principal Component or Factor Analysis that, although conceptually different, they are similar in results when FA is based on Spectral Value Decomposition and rotation is not performed. This works motivates theoretical reasons to derive the weights of the elementary indicators in a composite index when multiple components are retained in the analysis. By Monte Carlo simulation it offers, moreover, the best strategy to identify the number of components to retain.

Suggested Citation

  • Luca Farnia, 2019. "On the Use of Spectral Value Decomposition for the Construction of Composite Indices," Working Papers 2019.08, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2019.08
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    Cited by:

    1. Farnia, Luca & Cavalli, Laura & Vergalli, Sergio, 2019. "Italian Cities SDGs Composite Index: A Methodological Approach to Measure the Agenda 2030 at Urban Level," ES: Economics for Sustainability 291803, Fondazione Eni Enrico Mattei (FEEM) > ES: Economics for Sustainability.
    2. Luca Farnia & Laura Cavalli & Giula Lizzi & Sergio Vergalli, 2019. "Methodological Insights to Measure the Agenda 2030 at Urban Level in Italy," Sustainability, MDPI, vol. 11(17), pages 1-18, August.

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    More about this item

    Keywords

    Composite Index; Weighting; Correlation Matrix; Principal Com-ponent; Factor Analysis;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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