Random Matrix Theory Applied to Portfolio Optimization in Japanese Stock Market

Masashi Egi, Takashi Matsushita, Seiji Futatsugi and Keizaburo Murakami

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Abstract

We examined the effectiveness of random matrix theory applied to portfolio optimization using Japanese stock market data. We carried out 48 back tests for different historical periods and confirmed that it was possible to drastically improve the accuracy of portfolio risk evaluation using random matrix theory.

Key words random matrix theory - portfolio optimization - cross-correlation

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Random Matrix Theory Applied to Portfolio Optimization in Japanese Stock Market

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