Portfolio Construction Using Multidimensional Scaling to Visualize the Risk Structure

• Main Authors: Lin, Li-Hsun, 林立勳
• Other Authors: Wang, Keh-luh
• Format: Others
• Language: en_US
• Online Access: http://ndltd.ncl.edu.tw/handle/05567572833632790635

碩士 === 國立交通大學 === 財務金融研究所 === 97 === As a tenet in investment, diversification concept may be the most important guideline for the practitioners and researchers. In order to construct a well-diversified portfolio, we want to realize the whole risk structure of the financial market. In this study, we use multidimensional scaling technique to visualize time-varying returns between risky asset behaviors. From this market map, we can investigate adequacies of asset allocation and explore the risk structure of the markets more. We find that the MDS map can help us view and interpret the whole assets at once, thus we can select assets to construct a lower risk portfolio. Empirical results on several major markets also revealed the effectiveness of this approach.