DocumentCode :
2242638
Title :
Research on improvement of Chinese portfolio quality based on random matrix theory
Author :
Bing-na, Li ; Xiao-feng, Hui
Author_Institution :
Sch. of Manage., Harbin Inst. of Technol., Harbin, China
fYear :
2011
fDate :
13-15 Sept. 2011
Firstpage :
847
Lastpage :
853
Abstract :
In this paper, from the perspective of prediction of future optimal portfolio, a method for evaluating investment portfolio quality is proposed. Based on the definition of portfolio quality, after making assumptions on the `true´ correlation matrix, we theoretically analyze adverse influence of correlation noise on portfolio quality. The method from random matrix theory (RMT) can be used for denoising the correlation matrix in such a way that only statistically relevant information is used. Theoretically portfolio quality can be improved by noise filtering of correlation matrix based on RMT which is empirically proved in many different stock markets. Despite the fact that much noise exists for correlation matrices of Chinese stock returns, whether better portfolios can be achieved from Chinese stock market by application of RMT for removing the noise of correlation matrices is seldom studied. We apply the method based on random matrix theory to cleaning correlation matrices of 102 Chinese stocks and on this basis construct portfolios. Comparison of portfolios with different number of eigenvalues kept in correlation matrices of two different estimation periods shows that the denoising technique from RMT is an effective method of improving portfolio quality in Chinese stock market by successfully cleaning the correlation matrix.
Keywords :
eigenvalues and eigenfunctions; investment; matrix algebra; stock markets; Chinese portfolio quality; Chinese stock returns; correlation matrix; correlation noise; eigenvalues; investment portfolio quality evaluation; noise filtering; random matrix theory; stock markets; Correlation; Covariance matrix; Eigenvalues and eigenfunctions; Estimation; Noise; Noise measurement; Portfolios; correlation matrix; denoising; random matrix theory; stock portfolio;
fLanguage :
English
Publisher :
ieee
Conference_Titel :
Management Science and Engineering (ICMSE), 2011 International Conference on
Conference_Location :
Rome
ISSN :
2155-1847
Print_ISBN :
978-1-4577-1885-4
Type :
conf
DOI :
10.1109/ICMSE.2011.6070059
Filename :
6070059
Link To Document :
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