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Joakim Westerlund. Photo.

Joakim Westerlund

Professor, Programme director – Master of Data Analytics and Business Economics

Joakim Westerlund. Photo.

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

Author

  • Joakim Westerlund
  • Sagarika Mishra

Summary, in English

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.

Department/s

  • Department of Economics

Publishing year

2017-03-01

Language

English

Pages

161-184

Publication/Series

Statistical Papers

Volume

58

Issue

1

Document type

Journal article

Publisher

Springer

Topic

  • Economics
  • Probability Theory and Statistics

Keywords

  • Common factor model
  • Data-driven penalty
  • Information criterion
  • Panel data

Status

Published

ISBN/ISSN/Other

  • ISSN: 0932-5026