Latent Class Analysis for Portfolio Choice
نویسندگان
چکیده
We exploit the potential of latent class analysis in order to propose an innovative framework for financial portfolio development. By stressing the latent nature of the most important financial variables, the expected return and the risk, we are able to introduce a methodological dimension in relevant steps of portfolio analysis. First, we provide a test for the number of possible investment choices. Second, we are able to include in the decision process also the information related to economic and financial environment. Our results lead to an improvement in the risk management methods and, if compared to traditional portfolio strategies, allow us to achieve better investment opportunities.
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