IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2608.12589.html

Supervised Mixed-Frequency Learning for Macro-Financial Forecasting When Factors are Weak

Author

Listed:
  • Ulrich Hounyo
  • Zhendong Li

Abstract

Factor-MIDAS regressions forecast a low-frequency target by extracting common factors from a large panel of high-frequency predictors via principal component analysis (PCA). While PCA mitigates the curse of dimensionality, it relies on factor pervasiveness, an assumption often violated when factors are weak, as is common in macro-financial forecasting. We propose SsPCA-MIDAS, which integrates supervised scaled PCA (SsPCA) into the mixed-data sampling framework. We establish consistency and asymptotic normality under weak factors, permitting inference on the prediction target. Simulations show that SsPCA-MIDAS outperforms competing PCA-based and supervised methods, especially when weak factors are prevalent. Applying machine-learning techniques such as boosting to the cleaner factors it extracts yields further gains. An extensive application to U.S. macro-financial forecasting shows that SsPCA-MIDAS selects economically meaningful predictors and improves forecasts of GDP, inflation, unemployment, asset prices, and volatility.

Suggested Citation

  • Ulrich Hounyo & Zhendong Li, 2026. "Supervised Mixed-Frequency Learning for Macro-Financial Forecasting When Factors are Weak," Papers 2608.12589, arXiv.org.
  • Handle: RePEc:arx:papers:2608.12589
    as

    Download full text from publisher

    File URL: https://arxiv.org/pdf/2608.12589
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Klaus Wohlrabe & Teresa Buchen, 2014. "Assessing the Macroeconomic Forecasting Performance of Boosting: Evidence for the United States, the Euro Area and Germany," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 33(4), pages 231-242, July.
    2. Rey, Hélène, 2015. "Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence," CEPR Discussion Papers 10591, Centre for Economic Policy Research.
    3. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, July.
    4. Stefano Giglio & Dacheng Xiu, 2021. "Asset Pricing with Omitted Factors," Journal of Political Economy, University of Chicago Press, vol. 129(7), pages 1947-1990.
    5. Julian di Giovanni & Ṣebnem Kalemli-Özcan & Alvaro Silva & Muhammed A. Yildirim, 2022. "Global Supply Chain Pressures, International Trade, and Inflation," NBER Working Papers 30240, National Bureau of Economic Research, Inc.
    6. Massimiliano Marcellino & Christian Schumacher, 2010. "Factor MIDAS for Nowcasting and Forecasting with Ragged‐Edge Data: A Model Comparison for German GDP," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(4), pages 518-550, August.
    7. Michael W. McCracken & Serena Ng, 2021. "FRED-QD: A Quarterly Database for Macroeconomic Research," Review, Federal Reserve Bank of St. Louis, vol. 103(1), pages 1-44, January.
    8. Bai, Jushan & Ng, Serena, 2023. "Approximate factor models with weaker loadings," Journal of Econometrics, Elsevier, vol. 235(2), pages 1893-1916.
    9. Alexei Onatski, 2009. "Testing Hypotheses About the Number of Factors in Large Factor Models," Econometrica, Econometric Society, vol. 77(5), pages 1447-1479, September.
    10. Onatski, Alexei, 2012. "Asymptotics of the principal components estimator of large factor models with weakly influential factors," Journal of Econometrics, Elsevier, vol. 168(2), pages 244-258.
    11. Huang, Dashan & Jiang, Fuwei & Li, Kunpeng & Tong, Guoshi & Zhou, Guofu, 2023. "Are bond returns predictable with real-time macro data?," Journal of Econometrics, Elsevier, vol. 237(2).
    12. Hounyo, Ulrich & Li, Zhendong, 2026. "Forecasting economic time series in the presence of weak factors: Multiple supervised learning-based approach," International Journal of Forecasting, Elsevier, vol. 42(2), pages 414-433.
    13. Ang, Andrew & Piazzesi, Monika & Wei, Min, 2006. "What does the yield curve tell us about GDP growth?," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 359-403.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jie Wei & Yonghui Zhang, 2023. "Does Principal Component Analysis Preserve the Sparsity in Sparse Weak Factor Models?," Papers 2305.05934, arXiv.org, revised Nov 2024.
    2. Poncela, Pilar & Ruiz, Esther & Miranda, Karen, 2021. "Factor extraction using Kalman filter and smoothing: This is not just another survey," International Journal of Forecasting, Elsevier, vol. 37(4), pages 1399-1425.
    3. Matteo Barigozzi & Lorenzo Trapani, 2018. "Determining the dimension of factor structures in non-stationary large datasets," Papers 1806.03647, arXiv.org.
    4. Jianqing Fan & Yuling Yan & Yuheng Zheng, 2024. "When can weak latent factors be statistically inferred?," Papers 2407.03616, arXiv.org, revised Sep 2024.
    5. Haoyuan Xu & Wei Miao & Geert Dhaene & Jad Beyhum, 2026. "Bootstrap Inference in Nonlinear Panel Data Models with Interactive Fixed Effects," Papers 2604.26826, arXiv.org.
    6. Catherine Doz & Peter Fuleky, 2019. "Dynamic Factor Models," Working Papers halshs-02262202, HAL.
    7. Hounyo, Ulrich & Li, Zhendong, 2026. "Forecasting economic time series in the presence of weak factors: Multiple supervised learning-based approach," International Journal of Forecasting, Elsevier, vol. 42(2), pages 414-433.
    8. Qiao, Xinghao & Wang, Zihan & Yao, Qiwei & Zhang, Bo, 2026. "Weight-calibrated estimation for factor models of high-dimensional time series," LSE Research Online Documents on Economics 138585, London School of Economics and Political Science, LSE Library.
    9. Philipp Gersing & Matteo Barigozzi & Christoph Rust & Manfred Deistler, 2023. "The Canonical Decomposition of Factor Models: Weak Factors are Everywhere," Papers 2307.10067, arXiv.org, revised Jun 2026.
    10. Barigozzi, Matteo & Lippi, Marco & Luciani, Matteo, 2021. "Large-dimensional Dynamic Factor Models: Estimation of Impulse–Response Functions with I(1) cointegrated factors," Journal of Econometrics, Elsevier, vol. 221(2), pages 455-482.
    11. Dashan Huang & Fuwei Jiang & Kunpeng Li & Guoshi Tong & Guofu Zhou, 2022. "Scaled PCA: A New Approach to Dimension Reduction," Management Science, INFORMS, vol. 68(3), pages 1678-1695, March.
    12. Liyuan Cui & Yongmiao Hong & Yingxing Li & Junhui Wang, 2024. "A Regularized High-Dimensional Positive Definite Covariance Estimator with High-Frequency Data," Management Science, INFORMS, vol. 70(10), pages 7242-7264, October.
    13. Tom Boot & Bart Keijsers, 2025. "Diffusion index forecasts under weaker loadings: PCA, ridge regression, and random projections," Papers 2506.09575, arXiv.org.
    14. Alain-Philippe Fortin & Patrick Gagliardini & O. Scaillet, 2022. "Eigenvalue tests for the number of latent factors in short panels," Swiss Finance Institute Research Paper Series 22-81, Swiss Finance Institute.
    15. Jushan Bai & Serena Ng, 2020. "Simpler Proofs for Approximate Factor Models of Large Dimensions," Papers 2008.00254, arXiv.org.
    16. Juodis, Artūras & Reese, Simon, 2026. "Five lessons for applied researchers from twenty years of common correlated effects estimation," Journal of Econometrics, Elsevier, vol. 253(C).
    17. Matteo Barigozzi & Marc Hallin, 2023. "Dynamic Factor Models: a Genealogy," Papers 2310.17278, arXiv.org, revised Jan 2024.
    18. Gagliardini, Patrick & Ossola, Elisa & Scaillet, Olivier, 2019. "A diagnostic criterion for approximate factor structure," Journal of Econometrics, Elsevier, vol. 212(2), pages 503-521.
    19. Ang, Andrew & Bekaert, Geert & Wei, Min, 2007. "Do macro variables, asset markets, or surveys forecast inflation better?," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1163-1212, May.
    20. Deschamps, Bruno & Ioannidis, Christos & Ka, Kook, 2020. "High-frequency credit spread information and macroeconomic forecast revision," International Journal of Forecasting, Elsevier, vol. 36(2), pages 358-372.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2608.12589. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: https://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.