We examine finite sample properties of estimators for approximate factor models when N is small. Contrary to the “rule-of-thumb”, we find that the principal component analysis estimator and the quasi-maximum likelihood estimator perform well even when N is small.

This paper considers a multivariate extension of the test for neglected nonlinearity proposed by Tsay (1986) that uses principal components to overcome the problem of dimensionality that is common with tests of this type. Monte Carlo experiments reveal that the modified multivariate test...

We extend the correspondences between adaptive learning algorithms and the Kalman filter to formulations with time-varying gains. Our correspondences hold exactly, in a computational implementation sense, and we discuss how they relate to previous approximate correspondences found in the literature.

Pesaran and Yamagata (Pesaran, M.H., Yamagata, T., Testing slope homogeneity in large panels, Journal of Econometrics 142, 50–93, 2008) propose a test for slope homogeneity in large panels, which has become very popular in the literature. However, the test cannot deal with the practically...

In this paper we use the approximate bias expressions developed in Yu (2012) and Bao et al. (2013) to improve the testing of the ordinary least squares or quasi-maximum likelihood estimator of the mean reversion parameter in continuous time models. We follow the approach given in Iglesias and...

This paper applies the new procedure developed by Bai and Ng (2006a) to explore the relation between the Fama–French factors and the latent risk factors in China’s stock market. The results show that the Fama–French factors are good proxies for risk factors of portfolios. For individual...

In this paper we resort to singular spectrum analysis to disentangle the US GDP into several underlying components of interest. The business cycle indicator yielded through this method is shown to bear a resemblance with band-pass filtered output, and our results suggest it possesses better...

In social choice settings with linear preferences, random dictatorship is known to be the only social decision scheme satisfying strategyproofness and ex post efficiency. When also allowing indifferences, random serial dictatorship (RSD) is a well-known generalization of random dictatorship that...

In spite of their importance, third or higher moments of portfolio returns are often neglected in portfolio construction problems due to the computational difficulties associated with them. In this paper, we propose a new robust mean–variance approach that can control portfolio skewness and...

This paper considers three-dimensional panel data models with unobservable multiple interactive effects, which are potentially correlated with the covariates. We propose an iterated OLS (IOLS) approach for the estimation of the static model and an iterated GMM (IGMM) method for the dynamic...