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A Comparison of the Finite Sample Properties of Selection Rules of Factor Numbers in Large Datasets

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  • GUO-FITOUSSI, Liang
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    Abstract

    Abstract In this paper, we compare the properties of the main criteria proposed for selecting the number of factors in dynamic factor model in a small sample. Both static and dynamic factor numbers' selection rules are studied. Simulations show that the GR ratio proposed by Ahn and Horenstein (2013) and the criterion proposed by Onatski (2010) outperform the others. Furthermore, the two criteria can select accurately the number of static factors in a dynamic factors design. Also, the criteria proposed by Hallin and Liska (2007) and Breitung and Pigorsch (2009) correctly select the number of dynamic factors in most cases. However, empirical application show most criteria select only one factor in presence of one strong factor.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50005.

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    Date of creation: Sep 2013
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    Handle: RePEc:pra:mprapa:50005

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    Keywords: dynamic factor model; factor numbers; small sample;

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