Limit theorems for factor models

DOI10.1017/S0266466620000468MaRDI QIDQ5012632zbMATH OpenFDO

Authors Stanislav Anatolyev, Anna Mikusheva

Publication date 25 November 2021

Published in Econometric Theory (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1807.06338

zbMATH Keywords

factor modellimit theorem

Mathematics Subject Classification ID

Central limit and other weak theorems (60F05) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to economics (62P20)

Abstract: The paper establishes the central limit theorems and proposes how to perform valid inference in factor models. We consider a setting where many counties/regions/assets are observed for many time periods, and when estimation of a global parameter includes aggregation of a cross-section of heterogeneous micro-parameters estimated separately for each entity. The central limit theorem applies for quantities involving both cross-sectional and time series aggregation, as well as for quadratic forms in time-aggregated errors. The paper studies the conditions when one can consistently estimate the asymptotic variance, and proposes a bootstrap scheme for cases when one cannot. A small simulation study illustrates performance of the asymptotic and bootstrap procedures. The results are useful for making inferences in two-step estimation procedures related to factor models, as well as in other related contexts. Our treatment avoids structural modeling of cross-sectional dependence but imposes time-series independence.

Recommendations

• Inferential Theory for Factor Models of Large Dimensions
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Cited in

(4)

• Risk bounds for factor models
• Factor models with many assets: strong factors, weak factors, and the two-pass procedure
• Limit Theorems for Estimating the Parameters of Differentiated Product Demand Systems
• Testing many restrictions under heteroskedasticity

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