In this paper, we propose a novel consistent estimation method for the approximate factor model of Chamberlain and Rothschild (1983), with large cross-sectional and timeseries dimensions (N and T, respectively). Their model assumes that the r (fi N) largest eigenvalues of data covariance matrix...

This paper compares the predictive ability of the factor models of Stock and Watson (2002) and Forni, Hallin, Lippi, and Reichlin (2005) using a "large" panel of US macroeconomic variables. We propose a nesting procedure of comparison that clarifies and partially overturns the results of similar...

In this paper, we consider statistical inference for high-dimensional approximate factor models. We posit a weak factor structure, in which the factor loading matrix can be sparse and the signal eigenvalues may diverge more slowly than the cross-sectional dimension, N. We propose a novel...