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On the determination of the number of factors using information criteria with data-driven penalty

Westerlund, Joakim and Mishra, Sagarika 2015, On the determination of the number of factors using information criteria with data-driven penalty, Statistical papers, In Press, pp. 1-24, doi: 10.1007/s00362-015-0692-0.

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Title On the determination of the number of factors using information criteria with data-driven penalty
Author(s) Westerlund, Joakim
Mishra, Sagarika
Journal name Statistical papers
Season In Press
Start page 1
End page 24
Total pages 24
Publisher Springer
Place of publication Berlin, Germany
Publication date 2015-06
ISSN 0932-5026
Keyword(s) common factor model
data-driven penalty
information criterion
panel data
Summary As is well known, when using an information criterion to select the number of common factors in factor models the appropriate penalty is generally indetermine in the sense that it can be scaled by an arbitrary constant, c say, without affecting consistency. In an influential paper, Hallin and Liška (J Am Stat Assoc102:603–617, 2007) proposes a data-driven procedure for selecting the appropriate value of c. However, by removing one source of indeterminacy, the new procedure simultaneously creates several new ones, which make for rather complicated implementation, a problem that has been largely overlooked in the literature. By providing an extensive analysis using both simulated and real data, the current paper fills this gap.
Language eng
DOI 10.1007/s00362-015-0692-0
Field of Research 150202 Financial Econometrics
Socio Economic Objective 900199 Financial Services not elsewhere classified
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2015, Springer
Persistent URL http://hdl.handle.net/10536/DRO/DU:30073928

Document type: Journal Article
Collection: Department of Finance
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Created: Thu, 18 Jun 2015, 14:01:56 EST

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