A Performance Comparison of Large-n Factor Estimators
Review of Asset Pricing Studies, Volume 8, Number 1 (2018): 153-182.
110 Pages Posted: 18 Jan 2014 Last revised: 24 May 2018
Date Written: July 10, 2017
We evaluate the performance of various methods for estimating factor returns in an approximate factor model. Differences across estimators are most pronounced when there is cross-sectional heteroskedasticity, or when cross-sectional sample sizes, n, are below 4,000 assets. Estimators incorporating either cross-sectional or time-series heteroskedasticity outperform the other estimators when those types of heteroskedasticity are present. The differences are most pronounced when the cross-sectional sample is small.
Keywords: Factor Model, Asymptotic Principal Components, Large-Scale Factor Model
JEL Classification: G1, G12, C15, C23
Suggested Citation: Suggested Citation