1998/10/20 by Laurent Laloux, Pierre Cizeau, Jean-Philippe Bouchaud +1 · 11 citations
Physics and Astronomy · #cond-mat
paper · pdf · doi:10.1103/physrevlett.83.1467
published as Physical Review Letters 83(7), 1467 (1999) · Latex (Revtex) 3 pp + 2 postscript figures (in-text)
arxiv created 1998/10/20 · arxiv updated 2009/11/30
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.