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A note on factor models with latent group structures

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  • Bian, Yulin
  • Su, Liangjun

Abstract

This paper studies a factor model with latent group structures. Given initial PCA estimates, we propose to apply the sequential binary segmentation algorithm (SBSA) to estimate the group structures and re-estimate the factors and loadings. In the case of unknown number of groups, we propose to estimate it via an information criterion. We establish the asymptotic properties of the proposed estimators. Simulations demonstrate that our proposed estimator outperforms some competitive approaches in finite samples.

Suggested Citation

  • Bian, Yulin & Su, Liangjun, 2025. "A note on factor models with latent group structures," Economics Letters, Elsevier, vol. 252(C).
    • Handle: RePEc:eee:ecolet:v:252:y:2025:i:c:s0165176525001946
    DOI: 10.1016/j.econlet.2025.112357
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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