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Corrigendum to "GMM estimation of the number of latent factors: With application to international stock markets" [J Empir Financ. 17 (2010) 783-802]

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  • Ahn, Seung C.
  • Perez, M. Fabricio

Abstract

We propose new generalized method of moments (GMM) estimators for the number of latent factors in linear factor models. The estimators are appropriate for data with a large (small) number of cross-sectional observations and a small (large) number of time series observations. The estimation procedure is simple and robust to the configurations of idiosyncratic errors encountered in practice. In addition, the method can be used to evaluate the validity of observable candidate factors. Monte Carlo experiments show that the proposed estimators have good finite-sample properties. Applying the estimators to international stock markets, we find that international stock returns are explained by one strong global factor. This factor is highly correlated with the Fama-French factors from the U.S. stock market. This result can be interpreted as evidence of market integration. We also find two weak factors closely related to markets in Europe and the Americas, respectively.
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Suggested Citation

  • Ahn, Seung C. & Perez, M. Fabricio, 2010. "Corrigendum to "GMM estimation of the number of latent factors: With application to international stock markets" [J Empir Financ. 17 (2010) 783-802]," Journal of Empirical Finance, Elsevier, vol. 17(5), pages 1006-1006, December.
    • Handle: RePEc:eee:empfin:v:17:y:2010:i:5:p:1006-1006
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    Cited by:

    1. Mu Lin & Zhengdong Huang & Tianhong Zhao & Ying Zhang & Heyi Wei, 2022. "Spatiotemporal Evolution of Travel Pattern Using Smart Card Data," Sustainability, MDPI, vol. 14(15), pages 1-16, August.
    2. Jiang, Pan & Perez, M. Fabricio, 2021. "Follow the leader: Index tracking with factor models," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 337-350.
    3. Perez, M. Fabricio & Shkilko, Andriy & Sokolov, Konstantin, 2015. "Factor models for binary financial data," Journal of Banking & Finance, Elsevier, vol. 61(S2), pages 177-188.

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