A factor analysis of returns of shares traded on the Brussels Stock Exchange reveals that the first dominant factor is highly correlated with the popular Bel-20 index and that a distinctive alternative trend is represented by the market's second factor. We propose a new stock index consisting of...

This chapter surveys recent econometric methodologies for inference in large dimensional conditional factor models in finance. Changes in the business cycle and asset characteristics induce time variation in factor loadings and risk premia to be accounted for. The growing trend in the use of...

We build a simple diagnostic criterion for approximate factor structure in large panel datasets. Given observable factors, the criterion checks whether the errors are weakly cross-sectionally correlated or share at least one unobservable common factor (interactive effects). A general version...

Much of the trading activity in Equity markets is directed to brokerage houses. In exchange they provide so-called quot;soft dollarsquot; which basically are amounts spent in quot;researchquot; for identifying profitable trading opportunities. Soft dollars represent about USD 1 out of every USD...

We develop an econometric methodology to infer the path of risk premia from large unbalanced panel of individual stock returns. We estimate the time-varying risk premia implied by conditional linear asset pricing models where the conditioning includes instruments common to all assets and asset...

We develop inferential tools for latent factor analysis in short panels. The pseudo maximum likelihood setting under a large cross-sectional dimension n and a fixed time series dimension T relies on a diagonal T x T covariance matrix of the errors without imposing sphericity or Gaussianity. We...