Large dimensional covariance matrix estimation using a factor model

Jianqing Fan Yingying Fan Jinchi Lv

Statistics Theory and Methods mathscidoc:1912.43421

2008
1. Introduction. 1.1. Background. Covariance matrix estimation is fundamental for almost all areas of multivariate analysis and many other applied problems. In particular, covariance matrices and their inverses play a central role in risk management and portfolio allocation. For example, the smallest and largest eigenvalues are related to the minimum and maximum variances of the selected portfolio, respectively, and the eigenvectors are related to portfolio allocation. Therefore, we need a good covariance matrix estimator that is well-conditioned, ie inverting it does not excessively amplify the estimation error. See Goldfarb and Iyengar (2003) for applications of covariance matrices to portfolio selections and Johnstone (2001) for their statistical implications. Estimating large dimensional covariance matrices is intrinsically challenging. For example, in portfolio allocation and risk management, the number p of stocks can
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@inproceedings{jianqing2008large,
  title={Large dimensional covariance matrix estimation using a factor model},
  author={Jianqing Fan, Yingying Fan, and Jinchi Lv},
  url={http://archive.ymsc.tsinghua.edu.cn/pacm_paperurl/20191221114326408964981},
  year={2008},
}
Jianqing Fan, Yingying Fan, and Jinchi Lv. Large dimensional covariance matrix estimation using a factor model. 2008. http://archive.ymsc.tsinghua.edu.cn/pacm_paperurl/20191221114326408964981.
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