On Time-Varying Factor Models: Estimation and Testing

• Main Authors: SU, Liangjun, WANG, Xia
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: Factor model; Information criterion; Local principal component; Local smoothing; Structural change; Test; Time-varying parameter; Econometrics
• Online Access: https://ink.library.smu.edu.sg/soe_research/1779; https://ink.library.smu.edu.sg/context/soe_research/article/2778/viewcontent/Time_VaryingFactorModels_JoE2017_Su_Wang.pdf; https://ink.library.smu.edu.sg/context/soe_research/article/2778/filename/0/type/additional/viewcontent/Time_Varying_Factor_suppl_data.pdf
• Institution: Singapore Management University

Conventional factor models assume that factor loadings are fixed over a long horizon of time, which appears overly restrictive and unrealistic in applications. In this paper, we introduce a time-varying factor model where factor loadings are allowed to change smoothly over time. We propose a local v...