Eigenvalue Ratio Test for the Number of Factors

• 成果类型: Article
• 署名作者: Ahn, Seung C.; Horenstein, Alex R.
• 署名单位: Arizona State University; Arizona State University-Tempe; Sogang University; University of Miami; Instituto Tecnologico Autonomo de Mexico
• 刊物名称: ECONOMETRICA
• ISSN/ISSBN: 0012-9682
• DOI: 10.3982/ECTA8968
• 发表日期: 2013
• 页码: 1203-1227
• 关键词: approximate factor models; DYNAMIC-FACTOR MODEL; roots

摘要

This paper proposes two new estimators for determining the number of factors (r) in static approximate factor models. We exploit the well-known fact that the r largest eigenvalues of the variance matrix of N response variables grow unboundedly as N increases, while the other eigenvalues remain bounded. The new estimators are obtained simply by maximizing the ratio of two adjacent eigenvalues. Our simulation results provide promising evidence for the two estimators.