Random matrix theory filters in portfolio optimisation: A stability and risk assessment

J. Daly, M. Crane and H.J. Ruskin

Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, issue 16, 4248-4260

Abstract: 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.

Keywords: Random matrix theory; Portfolio optimisation; Econophysics (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:387:y:2008:i:16:p:4248-4260

DOI: 10.1016/j.physa.2008.02.045

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