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Sequential Variable Selection as Bayesian Pragmatism in Linear Factor Models

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Author Info

  • John Knight

    (Department of Economics, University of Western Ontario)

  • Stephen Satchell

    (Trinity College, Cambridge
    Department of Finance, University of Sydney)

  • Jessica Zhang

    (University of Greenwich)

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    Abstract

    We examine a popular practitioner methodology used in the construction of linear factor models whereby particular factors are increased/decreased in relative importance within the model. This allows model builders to customise models and, as such, reflect those factors that the client/modeller may think important. We call this process Pragmatic Bayesianism (or prag-Bayes for short) and we provide analysis which shows when such a procedure is likely to be successful.

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    File URL: http://www.bbk.ac.uk/ems/research/wp/2012/PDFs/BWPEF1213.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 1213.

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    Date of creation: Aug 2012
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    Handle: RePEc:bbk:bbkefp:1213

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    Related research

    Keywords: linear factor models; Bayesian statistics; sequential regression;

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