Eigenvalue Ratio Test for the Number of Factors

• 영문명: Eigenvalue Ratio Test for the Number of Factors
• 발행기관: 한국계량경제학회
• 저자명: Seung C. Ahn Alex R. Horenstein
• 간행물 정보: 『한국계량경제학회 학술대회 논문집』2008년 하계학술대회, 1~34쪽, 전체 34쪽
• 주제분류: 경제경영 > 경제학
• 파일형태: PDF
• 발행일자: 2008.08.30

영문 초록

This paper proposes two new estimators for determining the number of factors in approximate factor models. We exploit the well known fact that the r eigenvalues of the variance-covariance matrix of N response variables, where r is the number of comment factors in the variables, grow unboundedly as N increases. The criterion functions used for the two estimators are related to the ratio of two adjacent eigenvalues. An important advantage of the estimators is that they do not require the use of penalty functions. The estimators can be viewed as a reformulation of the well known scree test. We show that the estimators are consistent under the general conditions of Bai and Ng (2002). Our simulation results show that the estimators have good finite sample properties unless the signal-to-noise-ratio of each factor is too low. They perform much better than the Bai-Ng estimators do when either the number of the response variables analyzed or the number of time series observations, T, is small.

목차

1. Introduction

2. Preliminaries and Motivation

3. Assumptions and Asymptotic Results

4. Simulation Results

5. Application

6. Conclusion

키워드

approximate factor models number of factors eigenvalues scree test