Error Covariance Matrix Estimation in High Dimensional Approximate Factor Models Using Adaptive Thresholding

Download or read book Error Covariance Matrix Estimation in High Dimensional Approximate Factor Models Using Adaptive Thresholding written by Paul J. Chimenti and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Approximate factor models are popular in nance and economics. A key to eectively utilizing such a model is to accurately estimate the error covariance matrix. Errors related to certain predictors are expected to be correlated and this must be modeled eectively. Adaptive thresholding is a method for estimating the error covariance matrix of such a model. This method is described in detail and a simulation study sheds light on the behavior of this method under dierent sample sizes and parameterizations.