A Grouped Factor Model
AbstractIn this paper we present a grouped factor model that is designed to explore grouped structures in factor models. We develop an econometric theory consisting of a consistent classification rule to assign variables to their respective groups and a class of consistent model selection criteria to determine the number of groups as well as the number of factors in each group. As a result, we propose a procedure to estimate grouped factor models, in which the unknown number of groups, the unknown relationship between variables to their groups as well as the unknown number of factors in each group are statistically determined based on observed data. The procedure can help to estimate common factor that are pervasive across all groups and group-specific factors that are pervasive only in the respective groups. Simulations show that our proposed estimation procedure has satisfactory finite sample properties.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28083.
Date of creation: 01 Oct 2010
Date of revision: 11 Jan 2011
Factor Models; Generalized Principal Component Analysis; Model Selection;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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