Application of The Random Matrix Theory on the Cross-Correlation of Stock Prices

Abstract.The analysis of cross-correlations is extensively applied for understanding of in- terconnections in stock markets. Variety of methods are used in order to search stock cross- correlations including the Random Matrix Theory (RMT), the Principal Component Analysis (PCA) and the Hierachical Structures. In this work, we analyze cross-crrelations between price uctuations of 20 company stocks of Iran by using RMT. We nd the eigenvalues and eigen- vectors of the matrices of the cross-correlations related to these stocks. The results show some eigenvalues do not fall within the bounds of RMT eigenvalues, that indicate the correlations of stocks in usual and critical ucatutions.