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Signal and noise in financial correlation matrices

✍ Scribed by Zdzisław Burda; Jerzy Jurkiewicz

Publisher
Elsevier Science
Year
2004
Tongue
English
Weight
198 KB
Volume
344
Category
Article
ISSN
0378-4371

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✦ Synopsis

Using Random Matrix Theory one can derive exact relations between the eigenvalue spectrum of the covariance matrix and the eigenvalue spectrum of its estimator (experimentally measured correlation matrix). These relations will be used to analyze a particular case of the correlations in financial series and to show that contrary to earlier claims, correlations can be measured also in the ''random'' part of the spectrum. Implications for the portfolio optimization are briefly discussed.

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