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Determining the Number of Factors in Approximate Factor Models
Open accessAbstract
In this paper we develop some econometric theory for factor models of large dimensions. The focus is the determination of the number of factors (r), which is an unresolved issue in the rapidly growing literature on multifactor models. We first establish the convergence rate for the factor estimates that will allow for consistent estimation of r. We then propose some panel criteria and show that the number of factors can be consistently estimated using the criteria. The theory is developed under the framework of large cross-sections (N) and large time dimensions (T). No restriction is imposed on the relation between N and T. Simulations show that the proposed criteria have good finite sample properties in many configurations of the panel data encountered in practice.
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Citations
Cited by
A simple panel unit root test in the presence of cross‐section dependence
Pesaran, M. H. (2007) · Journal of Applied Econometrics · doi:10.1002/jae.951 · Cited by 12,787
Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure
Pesaran, M. H. (2006) · Econometrica · doi:10.1111/j.1468-0262.2006.00692.x · Cited by 5,078
Panel Data Models With Interactive Fixed Effects
(2009) · Econometrica · doi:10.3982/ecta6135 · Cited by 1,690
Electricity price forecasting: A review of the state-of-the-art with a look into the future
Weron, R. (2014) · International Journal of Forecasting · doi:10.1016/j.ijforecast.2014.08.008 · Cited by 1,646
Challenges of Big Data analysis
Fan, J., Han, F., & Liu, H. (2014) · National Science Review · doi:10.1093/nsr/nwt032 · Cited by 1,482
Metadata
- Authors
- Bai, J., & Ng, S.
- Venue
- Econometrica
- Publisher
- The Econometric Society
- Published
- 2002-01
- Volume
- 70
- Issue
- 1
- Pages
- 191-221
- ISSN
- 0012-9682 (ISSN-L)
- 1468-0262
- OpenAlex
- W1593748280
- Cited by
- 4,099
- References
- 0
- FWCI
- 105.30
- Type
- journal article
- Language
- en
- Open access
- green
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