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In the 1980s, the first doubts about the explanatory power of market beta in describing the cross-section of stocks returns began to appear. Since then, the financial literature has proposed a wide variety of new factors, even going so far as to speak of a phenomenon referred to as “zoo factor”. Many studies have focused on trying to determine the plausibility of these factors; however, all they have done is to determine the number of false discoveries. Random Matrix Theory (RMT) is presented as an optimal tool to be used in this field and is capable of providing a solution to the problem of the APT factors. In this chapter, we review the main asset pricing theories, along with alternative factor proposals in the financial literature. In addition, we present RMT and how it has been able to address this problem.

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Portfolio Selection: An Approach from Random Matrix Theory

  • 章节

  • 发表日期：

    2025年

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  • Laura Molero González,
  • Juan E. Trinidad Segovia,
  • Miguel A. Sánchez Granero,
  • Andrés García Medina

摘要

In the 1980s, the first doubts about the explanatory power of market beta in describing the cross-section of stocks returns began to appear. Since then, the financial literature has proposed a wide variety of new factors, even going so far as to speak of a phenomenon referred to as “zoo factor”. Many studies have focused on trying to determine the plausibility of these factors; however, all they have done is to determine the number of false discoveries. Random Matrix Theory (RMT) is presented as an optimal tool to be used in this field and is capable of providing a solution to the problem of the APT factors. In this chapter, we review the main asset pricing theories, along with alternative factor proposals in the financial literature. In addition, we present RMT and how it has been able to address this problem.