Abstract

http://ssrn.com/abstract=2380144
 


 



Small-Sample Properties of Factor Mimicking Portfolio Estimates


Zhuo Chen


Northwestern University - Kellogg School of Management

Gregory Connor


London School of Economics & Political Science (LSE) - Department of Accounting and Finance

Robert A. Korajczyk


Northwestern University - Kellogg School of Management

November 18, 2013


Abstract:     
This paper uses simulation methods to evaluate the performance of various methods for estimating factor returns in an approximate factor model when the cross sectional sample (n) is large relative to the time-series sample (T). We study the performance of the estimators under a variety of alternative specifications of the underlying factor structure. We find that 1) all of the estimators perform well, even when they do not accommodate the form of heteroskedasticity in the data; 2) for the sample sizes considered here, accommodating more general types of heteroskedasticity does not deteriorate performance much when simpler forms of hereoskedaticity are present; 3) one estimator converges to the true factors more slowly than the other estimators.

Number of Pages in PDF File: 28

Keywords: Factor Model, Asymptotic Principal Components, Large-Scale Factor Model

JEL Classification: G1, G12, C15, C23

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Date posted: January 18, 2014  

Suggested Citation

Chen, Zhuo and Connor, Gregory and Korajczyk, Robert A., Small-Sample Properties of Factor Mimicking Portfolio Estimates (November 18, 2013). Available at SSRN: http://ssrn.com/abstract=2380144 or http://dx.doi.org/10.2139/ssrn.2380144

Contact Information

Zhuo Chen
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
8474917758 (Phone)
Gregory Connor
London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )
Houghton Street
London WC2A 2AE
United Kingdom
+44 702 955-6407 (Phone)
+44 702 955-7420 (Fax)
Robert A. Korajczyk (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)
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