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Online Appendix for Canonical Correlation-based Model Selection for the Multilevel Factors

Author

Listed:
  • In Choi

    (Department of Economics, Sogang University, Seoul)

  • Rui Lin

    (Department of Economics, University of York.)

  • Yongcheol Shin

    (Department of Economics, University of York.)

Abstract

We provide additional simulation results and theoretical derivations. Section I provides the simulation results for the performance of the alternative selection criteria for estimating the number of local factors. Section II provides the proofs for Lemmas in Section 4.1.1. Section III describes the detailed estimation algorithms of alternative approaches for selecting the number of global factors. Section IV presents the additional empirical results, showing that the popular systematic risk factors, smb and hml, proposed by Fama and French (1993), do not explain the within and the between correlations. Section V investigates the nite sample performance of the existing model selection criteria that ignore the multilevel structure and demonstrate that the existing selection criteria will produce unreliable inference in nite samples.

Suggested Citation

  • In Choi & Rui Lin & Yongcheol Shin, 2020. "Online Appendix for Canonical Correlation-based Model Selection for the Multilevel Factors," Working Papers 2009, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    • Handle: RePEc:sgo:wpaper:2009
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    References listed on IDEAS

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    3. Karabiyik, Hande & Reese, Simon & Westerlund, Joakim, 2017. "On the role of the rank condition in CCE estimation of factor-augmented panel regressions," Journal of Econometrics, Elsevier, vol. 197(1), pages 60-64.
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    More about this item

    Keywords

    Multilevel Factor Models; Principal Components; Canonical Correlation Difference; Multilevel Asset Pricing Models;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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