Rank and Factor Loadings Estimation in Time Series Tensor Factor Model by Pre-averaging

DOI10.48550/ARXIV.2208.04012arXiv2208.04012MaRDI QIDQ87476FDOQ87476

Clifford Lam, Clifford Lam, Wei-Lin Chen, Weilin Chen

Publication date: 8 August 2022

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

Abstract: Tensor time series data appears naturally in a lot of fields, including finance and economics. As a major dimension reduction tool, similar to its factor model counterpart, the idiosyncratic components of a tensor time series factor model can exhibit serial correlations, especially in financial and economic applications. This rules out a lot of state-of-the-art methods that assume white idiosyncratic components, or even independent/Gaussian data. While the traditional higher order orthogonal iteration (HOOI) is proved to be convergent to a set of factor loading matrices, the closeness of them to the true underlying factor loading matrices are in general not established, or only under some strict circumstances like having i.i.d. Gaussian noises (Zhang and Xia, 2018). Under the presence of serial and cross-correlations in the idiosyncratic components and time series variables with only bounded fourth order moments, we propose a pre-averaging method that accumulates information from tensor fibres for better estimating all the factor loading spaces. The estimated directions corresponding to the strongest factors are then used for projecting the data for a potentially improved re-estimation of the factor loading spaces themselves, with theoretical guarantees and rate of convergence spelt out. We also propose a new rank estimation method which utilizes correlation information from the projected data, in the same spirit as Fan, Guo and Zheng (2022) for factor models with independent data. Extensive simulation results reveal competitive performance of our rank and factor loading estimators relative to other state-of-the-art or traditional alternatives. A set of matrix-valued portfolio return data is also analyzed.

Full work available at URL: https://arxiv.org/abs/2208.04012

zbMATH Keywords

bootstrap tensor fibrescore rank tensoriterative projection algorithmstrongest factors projectiontensor fibres pre-averaging

Mathematics Subject Classification ID

Factor analysis and principal components; correspondence analysis (62H25) Estimation in multivariate analysis (62H12)

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Cited In (1)

• TensorPreAve

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