A Canonical Representation of Block Matrices with Applications to Covariance and Correlation Matrices

12/04/2020

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by   Ilya Archakov, et al.

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We obtain a canonical representation for block matrices. The representation facilitates simple computation of the determinant, the matrix inverse, and other powers of a block matrix, as well as the matrix logarithm and the matrix exponential. These results are particularly useful for block covariance and block correlation matrices, where evaluation of the Gaussian log-likelihood and estimation are greatly simplified. We illustrate this with an empirical application using a large panel of daily asset returns. Moreover, the representation paves new ways to regularizing large covariance/correlation matrices and to test block structures in matrices.