题目：Testing for the Stable Relationship in High-Dimensional Factor Models

报告人: Wen Xu (Assistant Professor ,  ISEM/CUEB)

报告时间：2017年11月22日（周三） 13：30

地点：国际经管学院会议室（诚明楼三层）

主办方：国际经济管理学院

Abstract：

The principal components estimator of the common factors in high-dimensional approximate factor models can be inconsistent when there is large temporal instability in the factor loadings (Bates et al., 2013). In this paper we test for the stable factor structure against considerable time variation in the factor loadings in the form of martingales, which capture the notion of unstable factor relationship that gradually changes over time. We obtain the asymptotic distribution of the test statistic by deriving the conditions under which the estimation error of the common factors is asymptotically negligible for the test statistic. Monte Carlo simulations show that the proposed test performs well and is more powerful than the tests designed for structural breaks to detect unstable factor relationship. We apply the test to a panel of macroeconomic and financial variables in the UK and find the evidence of unstable factor structure during and after the recent financial crisis.

Biography

Wen Xu is an assistant professor at ISEM/CUEB. He works on Financial Econometrics.