PORTFOLIO OPTIMIZATION BY USING DENOISED COVARIANCE MATRIX IN TEHRAN STOCK EXCHANGE

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MOHAMMADI SHAPOUR; KHOJASTEH MOHAMAD ALI

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Paper Information

Journal: NAMEH-YE-MOFID Year:2009 | Volume:15 | Issue:1 (72 ECONOMICS) Page(s): 33-48

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Information Journal Paper

Title

PORTFOLIO OPTIMIZATION BY USING DENOISED COVARIANCE MATRIX IN TEHRAN STOCK EXCHANGE

Author(s)

MOHAMMADI SHAPOUR | KHOJASTEH MOHAMAD ALI | Issue Writer Certificate

Keywords

PORTFOLIO OPTIMIZATIONQ3

NOISEQ3

DENOISINGQ3

STOCKS COVARIANCE MATRIXQ3

RISK MANAGEMENTQ1

RANDOM MATRIX THEORYQ3

Abstract

Deviation of financial markets behavior in reality from which the Efficient Market Hypothesis suggests is a serious challenge. This fact is led to emerging of new fields in economics, like behavioral economics/finance and recently Econophysics/finance. These new fields aim to provide new ways of thinking about financial time series as the result of human factors and idealized rationality. They may shed some light on the inner workings of the market. In this study, we want to improve optimizing portfolio selection through DENOISING the empirical covariance matrix by using RANDOM MATRIX THEORY.We extract stable relations of stocks from empirical covariance matrix and compare the results of optimized portfolios in noisy and denoised states.We use daily returns of 70 stocks of Tehran Stock Exchange from March-2004 to May-2008. We show that denoised data significantly reduces the real risk of optimized portfolios and is beneficial for RISK MANAGEMENT and we recommend it to portfolio managers and financial analysts in real market.

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APA: Copy

MOHAMMADI, SHAPOUR, & KHOJASTEH, MOHAMAD ALI. (2009). PORTFOLIO OPTIMIZATION BY USING DENOISED COVARIANCE MATRIX IN TEHRAN STOCK EXCHANGE. NAMEH-YE-MOFID, 15(1 (72 ECONOMICS)), 33-48. SID. https://sid.ir/paper/3599/en

Vancouver: Copy

MOHAMMADI SHAPOUR, KHOJASTEH MOHAMAD ALI. PORTFOLIO OPTIMIZATION BY USING DENOISED COVARIANCE MATRIX IN TEHRAN STOCK EXCHANGE. NAMEH-YE-MOFID[Internet]. 2009;15(1 (72 ECONOMICS)):33-48. Available from: https://sid.ir/paper/3599/en

IEEE: Copy

SHAPOUR MOHAMMADI, and MOHAMAD ALI KHOJASTEH, “PORTFOLIO OPTIMIZATION BY USING DENOISED COVARIANCE MATRIX IN TEHRAN STOCK EXCHANGE,” NAMEH-YE-MOFID, vol. 15, no. 1 (72 ECONOMICS), pp. 33–48, 2009, [Online]. Available: https://sid.ir/paper/3599/en

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