Hidden Noise Structure and Random Matrix Models of Stock Correlations
We find a novel correlation structure in the residual noise of stock market returns that is remarkably linked to the composition and stability of the top few significant factors driving the returns, and moreover indicates that the noise band is composed of multiple subbands that do not fully mix. Ou...
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| Veröffentlicht in: | arXiv.org 2009-12 |
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| creator | Dimov, Ivailo I Kolm, Petter N Maclin, Lee Shiber, Dan Y C |
| description | We find a novel correlation structure in the residual noise of stock market returns that is remarkably linked to the composition and stability of the top few significant factors driving the returns, and moreover indicates that the noise band is composed of multiple subbands that do not fully mix. Our findings allow us to construct effective generalized random matrix theory market models that are closely related to correlation and eigenvector clustering. We show how to use these models in a simulation that incorporates heavy tails. Finally, we demonstrate how a subtle purely stationary risk estimation bias can arise in the conventional cleaning prescription. |
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| subjects | Clustering Computer simulation Correlation Eigenvectors Markets Matrix theory Noise |
| title | Hidden Noise Structure and Random Matrix Models of Stock Correlations |
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