Random Matrix Filtering in Portfolio Optimization

Gabor Papp, Szilard Pafka, Maciej A. Nowak and Imre Kondor ()

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Abstract: We study empirical covariance matrices in finance. Due to the limited amount of available input information, these objects incorporate a huge amount of noise, so their naive use in optimization procedures, such as portfolio selection, may be misleading. In this paper we investigate a recently introduced filtering procedure, and demonstrate the applicability of this method in a controlled, simulation environment.

Date: 2005-09
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Citations: View citations in EconPapers (18)

Published in Acta Physica Polonica 36 (2005) 2757

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