학술저널
Standardization and Estimation of Factor Numbers for Panel Data
- 한국계량경제학회
- JOURNAL OF ECONOMIC THEORY AND ECONOMETRICS
- Vol.23 No.2
-
2012.0679 - 88 (10 pages)
- 26
Practitioners often standardize panel data before estimating a factor model. In this paper we show an example that the standardization leads to inconsistent estimation of the factor number. When the common component exhibits strong heteroskedasticity, the conventional eigenvalue-based decompositions are consistent but standardization does not necessarily result in consistent estimation. To overcome this issue, we recommend using a “minimum-rule” whereby the minimum factor-number estimated from both the conventional and standardized panel is used. Monte Carlo studies and an empirical application are provided.
Abstract
1. INTRODUCTION
2. FAILURE OF STANDARDIZATION
3. MONTE CARLO STUDIES
4. EMPIRICAL EXAMPLE
5. CONCLUSION
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