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Non-stationary correlation matrices and noise

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  • Martins, André C.R.

Abstract

The exact meaning of the noise spectrum of eigenvalues of the correlation matrix is discussed. In order to better understand the possible phenomena behind the observed noise, the spectrum of eigenvalues of the correlation matrix is studied under a model where most of the true eigenvalues are zero and the parameters are non-stationary. The results are compared with real observation of Brazilian assets, suggesting that, although the non-stationarity seems to be an important aspect of the problem, partially explaining some of the eigenvalues as well as part of the kurtosis of the assets, it cannot, by itself, provide all the corrections needed to make the proposed model fit the data perfectly.

Suggested Citation

  • Martins, André C.R., 2007. "Non-stationary correlation matrices and noise," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(2), pages 552-558.
    • Handle: RePEc:eee:phsmap:v:379:y:2007:i:2:p:552-558
    DOI: 10.1016/j.physa.2006.12.020
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    3. Leonidas Sandoval Junior & Italo De Paula Franca, 2011. "Correlation of financial markets in times of crisis," Papers 1102.1339, arXiv.org, revised Mar 2011.

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