Physics – Condensed Matter
Scientific paper
1998-10-20
Physical Review Letters 83(7), 1467 (1999)
Physics
Condensed Matter
Latex (Revtex) 3 pp + 2 postscript figures (in-text)
Scientific paper
10.1103/PhysRevLett.83.1467
We show that results from the theory of random matrices are potentially of great interest to understand the statistical structure of the empirical correlation matrices appearing in the study of price fluctuations. The central result of the present study is the remarkable agreement between the theoretical prediction (based on the assumption that the correlation matrix is random) and empirical data concerning the density of eigenvalues associated to the time series of the different stocks of the S&P500 (or other major markets). In particular the present study raises serious doubts on the blind use of empirical correlation matrices for risk management.
Bouchaud Jean-Philippe
Cizeau Pierre
Laloux Laurent
Potters Marc
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