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Noise Dressing of Financial Correlation Matrices
Open accessAbstract
We show that results from the theory of random matrices are potentially of great interest to understand the statistical structure of the empirical correlation matrices appearing in the study of multivariate time series. The central result of the present study, which focuses on the case of financial price fluctuations, is the remarkable agreement between the theoretical prediction (based on the assumption that the correlation matrix is random) and empirical data concerning the density of eigenvalues associated to the time series of the different stocks of the S 500 (or other major markets). In particular, the present study raises serious doubts on the blind use of empirical correlation matrices for risk management.
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Cited by
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Diffusion MRI noise mapping using random matrix theory
Veraart, J., Fieremans, E., & Novikov, D. S. (2016) · Magnetic Resonance in Medicine · doi:10.1002/mrm.26059 · Cited by 773
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The physics of financial networks
Bardoscia, M., Barucca, P., Battiston, S., Caccioli, F., Cimini, G., Garlaschelli, D., Saracco, F., Squartini, T., & Caldarelli, G. (2021) · Nature Reviews Physics · doi:10.1038/s42254-021-00322-5 · Cited by 281
Cause and cure of sloppiness in ordinary differential equation models
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Metadata
- Authors
- Laloux, L., Cizeau, P., Bouchaud, J.-P., & Potters, M.
- Venue
- Physical Review Letters
- Publisher
- American Physical Society (APS)
- Published
- 1999-08-16
- Volume
- 83
- Issue
- 7
- Pages
- 1467-1470
- ISSN
- 0031-9007 (ISSN-L)
- 1079-7114
- OpenAlex
- W2147675445
- Cited by
- 1,241
- References
- 0
- FWCI
- 67.12
- Type
- journal article
- Language
- en
- Open access
- green
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- Laloux, L., Cizeau, P., Bouchaud, J.-P., & Potters, M. (1999). Noise Dressing of Financial Correlation Matrices. Physical Review Letters. https://doi.org/10.1103/physrevlett.83.1467
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