Im working on market reaction to events and I'm using the co-variance matrix to do this. In this paper the author writes
It has been known for some time that the largest eigenvalue (λ1) contains information on the risk associated with the particular assets of which the co-variance matrix is comprised.
However, there's no reference for this and I haven't found anything that backs up his point because eigenvalues are used for many other things.
What I want to know is:
- How do we know that the first eigenvalue contains the most information?
- Where can I get more to read on this topic?