APPLYING RANDOM MATRIX THEORY APPROACH FOR MAKING PORTFOLIO ENABLE TO BEAT THE MARKET

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SAFAVI MOBARHANA NAFISEH SADAT; JAFARI GHOLAMREZA; SAEEDI ALI

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Paper Information

Journal: FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT) Year:2018 | Volume:9 | Issue:34 Page(s): 69-83

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Title

APPLYING RANDOM MATRIX THEORY APPROACH FOR MAKING PORTFOLIO ENABLE TO BEAT THE MARKET

Author(s)

SAFAVI MOBARHANA NAFISEH SADAT | JAFARI GHOLAMREZA | SAEEDI ALI | Issue Writer Certificate

Keywords

COMPLEX SYSTEMSQ1

NETWORKQ1

RANDOM MATRIX THEORYQ1

PORTFOLIOQ2

MARKET RETURNQ2

CORRELATION MATRIXQ1

Abstract

We applied RANDOM MATRIX THEORY making a PORTFOLIO enables to beat the market. On the basis of previous findings, the largest eigenvalue represents the influence of the entire market that is common to all stocks. We analyzed cross-correlation between returns of different stock market indices (S & p500, DJ USA, DAX Germany, FTSE100 England, HSI Hong Kong for efficient markets and TSE Iran, SSE180 China and MXX Mexico for emerging markets) for 730 trading days from May 2012 to October 2014 by using RANDOM MATRIX THEORY (RMT). Looking at the largest eigenvalue and components (stocks) of the largest eigenvector (demonstrating market mode or trend) and calculating share of every stock in market trend, we could categorize stocks in terms of their impact on the trend in 3 groups: high, middle and low or no impact on market trend. Then we created 3 PORTFOLIO in this respect for Tehran stock market. The results shows the PORTFOLIO consisting of high impact stocks can beat the MARKET RETURN.

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APA: Copy

SAFAVI MOBARHANA, NAFISEH SADAT, JAFARI, GHOLAMREZA, & SAEEDI, ALI. (2018). APPLYING RANDOM MATRIX THEORY APPROACH FOR MAKING PORTFOLIO ENABLE TO BEAT THE MARKET. FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT), 9(34 ), 69-83. SID. https://sid.ir/paper/197582/en

Vancouver: Copy

SAFAVI MOBARHANA NAFISEH SADAT, JAFARI GHOLAMREZA, SAEEDI ALI. APPLYING RANDOM MATRIX THEORY APPROACH FOR MAKING PORTFOLIO ENABLE TO BEAT THE MARKET. FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT)[Internet]. 2018;9(34 ):69-83. Available from: https://sid.ir/paper/197582/en

IEEE: Copy

NAFISEH SADAT SAFAVI MOBARHANA, GHOLAMREZA JAFARI, and ALI SAEEDI, “APPLYING RANDOM MATRIX THEORY APPROACH FOR MAKING PORTFOLIO ENABLE TO BEAT THE MARKET,” FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT), vol. 9, no. 34 , pp. 69–83, 2018, [Online]. Available: https://sid.ir/paper/197582/en

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