Projected principal component analysis in factor models

DOI10.1214/15-AOS1364zbMATH Open1331.62295arXiv1406.3836WikidataQ40090480 ScholiaQ40090480MaRDI QIDQ5963521FDOQ5963521

Authors: Jianqing Fan, Yuan Liao, Weichen Wang 

Publication date: 22 February 2016

Published in: The Annals of Statistics (Search for Journal in Brave)

Abstract: This paper introduces a Projected Principal Component Analysis (Projected-PCA), which employs principal component analysis to the projected (smoothed) data matrix onto a given linear space spanned by covariates. When it applies to high-dimensional factor analysis, the projection removes noise components. We show that the unobserved latent factors can be more accurately estimated than the conventional PCA if the projection is genuine, or more precisely, when the factor loading matrices are related to the projected linear space. When the dimensionality is large, the factors can be estimated accurately even when the sample size is finite. We propose a flexible semiparametric factor model, which decomposes the factor loading matrix into the component that can be explained by subject-specific covariates and the orthogonal residual component. The covariates' effects on the factor loadings are further modeled by the additive model via sieve approximations. By using the newly proposed Projected-PCA, the rates of convergence of the smooth factor loading matrices are obtained, which are much faster than those of the conventional factor analysis. The convergence is achieved even when the sample size is finite and is particularly appealing in the high-dimension-low-sample-size situation. This leads us to developing nonparametric tests on whether observed covariates have explaining powers on the loadings and whether they fully explain the loadings. The proposed method is illustrated by both simulated data and the returns of the components of the S&P 500 index.

Full work available at URL: https://arxiv.org/abs/1406.3836

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zbMATH Keywords

high-dimensionalitysieve approximationsemiparametric factor modelsloading matrix modeling

Mathematics Subject Classification ID

Factor analysis and principal components; correspondence analysis (62H25) Hypothesis testing in multivariate analysis (62H15)

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Cited In (46)

• Factor Extraction in Dynamic Factor Models: Kalman Filter Versus Principal Components
• Autoencoder asset pricing models
• Semi-parametric single-index panel data models with interactive fixed effects: theory and practice
• Supervised singular value decomposition and its asymptotic properties
• Robust covariance estimation for approximate factor models
• Nonparametric fixed effects model for panel data with locally stationary regressors
• A self-reliant projected information criterion for the number of factors
• Time varying factor models with possibly strongly correlated noises
• Estimating latent asset-pricing factors
• High dimensional minimum variance portfolio estimation under statistical factor models
• A semiparametric latent factor model for large scale temporal data with heteroscedasticity
• Non-asymptotic properties of spectral decomposition of large Gram-type matrices and applications
• Directed principal component analysis
• Learning Latent Factors From Diversified Projections and Its Applications to Over-Estimated and Weak Factors
• Estimation and inference in semiparametric quantile factor models
• Sparse online principal component analysis for parameter estimation in factor model
• Predicting the VIX and the volatility risk premium: the role of short-run funding spreads volatility factors
• Cross-Validated Loss-based Covariance Matrix Estimator Selection in High Dimensions
• Varying-Coefficient Panel Data Models With Nonstationarity and Partially Observed Factor Structure
• Augmented factor models with applications to validating market risk factors and forecasting bond risk premia
• Intraday cross-sectional distributions of systematic risk
• Interpretable Sparse Proximate Factors for Large Dimensions
• Sequential Scaled Sparse Factor Regression
• State-Varying Factor Models of Large Dimensions
• Dynamic Peer Groups of Arbitrage Characteristics
• Recent developments in high dimensional covariance estimation and its related issues, a review
• Continuum directions for supervised dimension reduction
• Quasi maximum likelihood analysis of high dimensional constrained factor models
• Rejoinder
• Large covariance estimation through elliptical factor models
• Sufficient forecasting using factor models
• Uniform predictive inference for factor models with instrumental and idiosyncratic betas
• Changes in the span of systematic risk exposures
• Factor Models for High-Dimensional Tensor Time Series
• Large sample correlation matrices with unbounded spectrum
• Large dimensional latent factor modeling with missing observations and applications to causal inference
• An integrated panel data approach to modelling economic growth
• Robust projected principal component analysis for large-dimensional semiparametric factor modeling
• GMM estimation for high-dimensional panel data models
• Target PCA: transfer learning large dimensional panel data
• Least squares estimation of large dimensional threshold factor models
• Supervised multiway factorization
• Heterogeneity adjustment with applications to graphical model inference
• Doubly debiased Lasso: high-dimensional inference under hidden confounding
• Dynamic Semiparametric Factor Model With Structural Breaks
• Subfactor projections.

Uses Software

• FAMT

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