Collective origin of the coexistence of apparent random matrix theory noise and of factors in large sample correlation matrices

Yannick Malevergne and Didier Sornette

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Abstract: Through simple analytical calculations and numerical simulations, we demonstrate the generic existence of a self-organized macroscopic state in any large multivariate system possessing non-vanishing average correlations between a finite fraction of all pairs of elements. The coexistence of an eigenvalue spectrum predicted by random matrix theory (RMT) and a few very large eigenvalues in large empirical correlation matrices is shown to result from a bottom–up collective effect of the underlying time series rather than a top–down impact of factors. Our results, in excellent agreement with previous results obtained on large financial correlation matrices, show that there is relevant information also in the bulk of the eigenvalue spectrum and rationalize the presence of market factors previously introduced in an ad hoc manner.

Date: 2004-01-01
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Published in Physica A: Statistical Mechanics and its Applications, 2004, 331 (3-4), pp.660-668 P

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Journal Article: Collective origin of the coexistence of apparent random matrix theory noise and of factors in large sample correlation matrices (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02312894

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