Bridging factor and sparse models

DOI10.1214/23-AOS2304MaRDI QIDQ6183755OpenAlexFDO

Authors Jianqing Fan, Ricardo P. Masini, Marcelo C. Medeiros

Publication date 4 January 2024

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

Full work available at URL https://arxiv.org/abs/2102.11341

zbMATH Keywords

factor modelspredictionsupervised learninghigh-dimensional inferencemachine learningpenalized least-squares(partial) covariance structure

Mathematics Subject Classification ID

Parametric hypothesis testing (62F03) Factor analysis and principal components; correspondence analysis (62H25)

Abstract: Factor and sparse models are two widely used methods to impose a low-dimensional structure in high-dimensions. However, they are seemingly mutually exclusive. We propose a lifting method that combines the merits of these two models in a supervised learning methodology that allows for efficiently exploring all the information in high-dimensional datasets. The method is based on a flexible model for high-dimensional panel data, called factor-augmented regression model with observable and/or latent common factors, as well as idiosyncratic components. This model not only includes both principal component regression and sparse regression as specific models but also significantly weakens the cross-sectional dependence and facilitates model selection and interpretability. The method consists of several steps and a novel test for (partial) covariance structure in high dimensions to infer the remaining cross-section dependence at each step. We develop the theory for the model and demonstrate the validity of the multiplier bootstrap for testing a high-dimensional (partial) covariance structure. The theory is supported by a simulation study and applications.

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Cited in

(3)

• Non-parametric regression among factor scores: motivation and diagnostics for nonlinear structural equation models
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