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11
votes
3answers
537 views
What are some research articles on using principle components to generate alpha?
Here's an example by Marco Avellenada from NYU titled "Statistical Arbitrage in the U.S. Equities Market". The idea of this paper involves capturing mean reversion in the residual returns of a ...
5
votes
1answer
167 views
RMT (Random Matrix Theory) issue with callibrating MP distribution -
I am seeing an issue when callibrating an MP distribution. Assume a log return series for the SP500 with the following dimensions
dim(xts.sp500.ret.stocksonly)
==> [1] 1133 478
...
7
votes
3answers
412 views
Does random matrix theory (RMT) for returns' correlation matrices apply if there are high correlations?
Steps to replicate:
Take the correlation matrix of a sample of stocks in the SP500, or a set of ETF's that are include some that are highly correlated (0.7 and above).
Problem observed:
I observe ...
9
votes
1answer
431 views
One dimensional analog of cleansing a correlation matrix via random matrix theory
The general idea of cleansing a correlation matrix via random matrix theory is to compare its eigenvalues to that of a random one to see which parts of it are beyond normal randomness. These are then ...
11
votes
1answer
664 views
Cleansing covariance matrices via Random matrix theory
I am exploring de-noising and cleansing of covariance matrices via Random Matrix Theory. RMT is a competitor to shrinkage methods of covariance estimation. There are various methods expressed usually ...
21
votes
4answers
2k views
Random matrix theory (RMT) in finance
The new kid on the block in finance seems to be random matrix theory. Although RMT as a theory is not so new (about 50 years) and was first used in quantum mechanics it being used in finance is a ...
