Investigating Finite Sample Properties of Estimators for Approximate Factor Models When N Is Small
AbstractThis paper examines the finite sample properties of estimators for approximate factor models when N is small via simulation study. Although the "rule-of-thumb" for factor models does not support using approximate factor models when N is small, we find that the principal component analysis estimator and quasi-maximum likelihood estimator proposed by Doz et al. (2008) perform very well even in this case. Our findings provide an opportunity for applying approximate factor models to low-dimensional data, which was thought to have been inappropriate for a long time.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-156.
Date of creation: Dec 2010
Date of revision:
Approximate factor model; Principal components; Quasi-maximum likelihood;
Other versions of this item:
- Tanaka, Shinya & Kurozumi, Eiji, 2012. "Investigating finite sample properties of estimators for approximate factor models when N is small," Economics Letters, Elsevier, vol. 116(3), pages 465-468.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
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