Choi, In, Lin, Rui and Shin, Yongcheol (2023) Canonical Correlation-based Model Selection for the Multilevel Factors. Journal of Econometrics. pp. 22-44. ISSN 0304-4076
Abstract
We develop a novel approach based on the canonical correlation analysis to identify the number of the global factors in the multilevel factor model. We propose the two consistent selection criteria, the canonical correlations difference (CCD) and the modified canonical correlations (MCC). Via Monte Carlo simulations, we show that CCD and MCC select the number of global factors correctly even in small samples, and they are robust to the presence of serially correlated and weakly cross-sectionally correlated idiosyncratic errors as well as the correlated local factors. Finally, we demonstrate the utility of our approach with an application to the multilevel asset pricing model for the stock return data in 12 industries in the U.S.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2021 Elsevier B.V. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. |
Keywords: | Multilevel Factor Models,Principal Components,Canonical Correlation Difference,Modified Canonical Correlations,Multilevel Asset Pricing Models |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Funding Information: | Funder Grant number ECONOMIC AND SOCIAL RESEARCH COUNCIL (ESRC) ES/T01573X/1 |
Depositing User: | Pure (York) |
Date Deposited: | 21 Sep 2021 14:20 |
Last Modified: | 01 Mar 2025 01:13 |
Published Version: | https://doi.org/10.1016/j.jeconom.2021.09.008 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.1016/j.jeconom.2021.09.008 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:178403 |