RMT in Finance

Random Matrix Theory (RMT) in finance studies how complex systems behave, particularly in understanding the relationships between financial variables, like asset returns or correlations. RMT uses mathematical models that treat financial data as elements of large random matrices. This approach helps identify patterns and predict market behavior, particularly in turbulent conditions. By examining the eigenvalues and eigenvectors of these matrices, analysts can gain insights into risk management, portfolio diversification, and market stability. Essentially, RMT provides tools for analyzing the structure of financial markets to help inform better investment decisions.