Portfolio Selection: An Approach from Random Matrix Theory

Laura Molero González (), Juan E. Trinidad Segovia (), Miguel A. Sánchez Granero () and Andrés García Medina ()
Additional contact information
Laura Molero González: University of Almería
Juan E. Trinidad Segovia: University of Almería
Miguel A. Sánchez Granero: University of Almería
Andrés García Medina: Center for Research in Mathematics

Chapter Chapter 10 in Advances in Quantitative Methods for Economics and Business, 2025, pp 199-224 from Springer

Abstract: Abstract In the 1980s, the first doubts about the explanatory power of market beta in describing the cross-section of stocks returns began to appear. Since then, the financial literature has proposed a wide variety of new factors, even going so far as to speak of a phenomenon referred to as “zoo factor”. Many studies have focused on trying to determine the plausibility of these factors; however, all they have done is to determine the number of false discoveries. Random Matrix Theory (RMT) is presented as an optimal tool to be used in this field and is capable of providing a solution to the problem of the APT factors. In this chapter, we review the main asset pricing theories, along with alternative factor proposals in the financial literature. In addition, we present RMT and how it has been able to address this problem.

Keywords: Sharpe; CAPM; APT; Market beta; Random Matrix Theory; Onatski’s test (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-84782-0_10

Ordering information: This item can be ordered from
http://www.springer.com/9783031847820

DOI: 10.1007/978-3-031-84782-0_10

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().