3 research outputs found
Eigen analysis of the stability and degree of information content in correlation matrices constructed from property time series data
Property is an asset which forms part of the portfolios of many investors, particularly
institutional ones, along with equities and bonds. Techniques from physics, particularly
that of random matrix theory, have provided powerful insights into the behaviour of
financial assets. A large database providing time series data for over 10,000 individual properties is available for the UK. Some of the data is available at an annual and some at a monthly
frequency. However, even at the monthly frequency, only a relatively small number of
observations is available, certainly in comparison with that available with financial
assets. A key issue in translating methods of analysis in financial markets to property data is
whether they are applicable given the small number of data points available. This paper
addresses this issue. Using the tools of random matrix theory, we find that a great deal of information is contained within property data. The correlations between different types and
geographical locations of property tend to have far more true information and be more
stable over time than is the case with financial data, despite the large number of
observations available with the latter