Random matrix theory filters in portfolio optimisation: A stability and risk assessment
Random matrix theory (RMT) filters, applied to covariance matrices of financial returns, have recently been shown to offer improvements to the optimisation of stock portfolios. This paper studies the effect of three RMT filters on the realised portfolio risk, and on the stability of the filtered covariance matrix, using bootstrap analysis and out-of-sample testing.
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Volume (Year): 387 (2008)
Issue (Month): 16 ()
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- Plerou, V & Gopikrishnan, P & Rosenow, B & Amaral, L.A.N & Stanley, H.E, 2000. "A random matrix theory approach to financial cross-correlations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 374-382.
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- Plerou, Vasiliki & Gopikrishnan, Parameswaran & Rosenow, Bernd & Amaral, Luis A.N. & Stanley, H.Eugene, 2000. "Econophysics: financial time series from a statistical physics point of view," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 279(1), pages 443-456.
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