Enhancing Portfolio Allocation: A Random Matrix Theory Perspective
Fabio Vanni,
Asmerilda Hitaj,
Elisa Mastrogiacomo
Abstract:This paper explores the application of Random Matrix Theory (RMT) as a methodological enhancement for portfolio selection within financial markets. Traditional approaches to portfolio optimization often rely on historical estimates of correlation matrices, particularly susceptible to instability.
To address this challenge, we combine a data preprocessing technique based on the Hilbert transformation of returns with RMT to refine the accuracy and robustness of correlation matrix estimation. By contrasting emp… Show more
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