No abstract

Standard sector classification frameworks present drawbacks that might hinder portfolio manager. This paper introduces a new non-parametric approach to equity classification. Returns are decomposed into their fundamental drivers through Independent Component Analysis (ICA). Stocks are then classified according to the relative importance of identified fundamental drivers for their returns. A method is developed permitting the quantification of these dependencies, using a similarity index. Hierarchical clustering allows for grouping the stocks into new classes. The resulting classes are compared with those from the 2-digit GICS system for U.S. blue chip companies. It is shown that specific relations between stocks are not captured by the GICS framework. The method is applied on two different samples and tested for robustness. JEL: G11, G19

No abstract

Purpose -The purpose of this paper is to compare two opposite approaches chosen to regulate an industry. Design/methodology/approach -The approach is based on studying the two selected regulation systems, Basel III and the Eurocodes and identifies how the one system regulates financial institutions and the other one civil engineering design. Findings -The paper shows that the financial regulation uses a cause-based approach to regulation, in which the causes of a crisis are found and controlled. The Eurocodes in civil engineering make no specific attempt to understand the specific causes of a failure; however, they provide a framework, which transfers full responsibility onto the designer if the designer decides not to adhere to a set of codes of practice. It is the trade-off between less regulation and increased responsibility. Originality/value -The paper presents a new way of understanding the impact and use of regulation by comparing it to a system which has the same purpose but uses opposite means. It shows how financial regulation in reality has limitations which are its inherent weakness.