ECONOMICS SEMINAR : Lorenzo Trapani (University of Nottingham)
Wednesday 12 December 2018, 3:30pm to 4:45pm
Venue
LT6, LUMSOpen to
Public, StaffRegistration
Registration not required - just turn upEvent Details
This Seminar will be hosted by the Economics
Lorenzo Trapani will present “Determining the dimension of factor structures in non-stationary large datasets” (with M. Barigozzi)
ABSTRACT:
Wepropose a procedure to determine the dimension of the common factor space in alarge, possibly non-stationary, dataset. Our procedure is designed to determinewhether there are (and how many) common factors (i) with linear
trends, (ii) with stochastic trends, (iii) with no trends,i.e. stationary. Our analysis is based on the fact that the largest eigenvaluesof a suitably scaled covariance matrix of the data (corresponding to the commonfactor part) diverge,
as the dimension N of the dataset diverges, whilst theothers stay bounded. Therefore, we propose a class of randomised teststatistics for the null that the p -th eigenvalue diverges, based directly onthe estimated eigenvalue. The tests only requires minimal assumptions on thedata, and no restrictions on the relative rates of divergence of N andT are imposed. Monte Carlo evidence shows that our procedure has verygood nite sample properties, clearly dominating competing approaches when nocommon factors are present. We illustrate our methodology through anapplication to US bond yields with different maturities observed over the last30 years. A common linear trend and two common stochastic trends are found andidentied as the classical level, slope and curvature factors
Contact Details
Name | Caren Wareing |
Telephone number |
+44 1524 594222 |