NDLI: What drives stock returns?-an independent component analysis

Content Provider	IEEE Xplore Digital Library
Author	Back, A.D. Weigend, A.S.
Copyright Year	1998
Description	Author affiliation: RIKEN, Inst. of Phys. & Chem. Res., Saitama, Japan (Back, A.D.)
Abstract	The paper discusses the application of a signal processing technique known as independent component analysis (ICA), also called blind source separation, to multivariate financial time series. The key idea of ICA is to linearly map observed multivariate time series (such as a portfolio of stocks) into a new space of components that are statistically independent. The authors apply ICA to daily returns of the 28 largest Japanese stocks and compare the ICA results to principal component analysis. Their results indicate that the estimated ICs fall into two categories, (i) infrequent but large shocks (responsible for the major changes in the stock prices), and (ii) frequent but rather small fluctuations (contributing little to the overall level of the stocks). They show that the overall stock price can be reconstructed surprisingly well by thresholding the weighted ICs and using, on average, only one such shock per quarter. In contrast, when using shocks derived from principal components instead of independent components, the reconstructed price does not resemble the original one. The technique of ICA is shown to be a potentially powerful method to analyze and understand driving mechanisms in financial time series.
Starting Page	141
Ending Page	156
File Size	964730
Page Count	16
File Format	PDF
ISBN	078034930X
DOI	10.1109/CIFER.1998.690056
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	1998-06-25
Publisher Place	USA
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Independent component analysis Principal component analysis Deconvolution Signal processing Electric shock Blind source separation Econometrics Chemical analysis Information systems Portfolios
Content Type	Text
Resource Type	Article

Sl.	Authority	Responsibilities	Communication Details
1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
5	Website/Portal (Helpdesk)	Queries regarding NDLI and its services	support@ndl.gov.in
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9	IDR Setup or Support	Queries related to establishment and support of Institutional Digital Repository (IDR) and IDR workshops	idr@ndl.gov.in

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