Stochastics and Discrete Analysis Seminar: Andrew Papanicolaou, NC State, Principal Eigenportfolios and Primary Factors
SAS 4201Multiple financial assets’ time-series data is stored in a matrix upon which we perform principal component analysis to find predominant factors in the market. Random matrix theory helps us to identify the number of factors present in the data, with the top eigenvalue-eigenvector pair bearing a strong resemblance to the market’s capitalization-weighted portfolio. This resemblance…