Download this Paper Open PDF in Browser

A Performance Comparison of Large-n Factor Estimators

Review of Asset Pricing Studies, Forthcoming

110 Pages Posted: 18 Jan 2014 Last revised: 11 Jun 2017

Zhuo Chen

Tsinghua University - PBC School of Finance; Tsinghua University - PBC School of Finance

Gregory Connor

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

Robert A. Korajczyk

Northwestern University - Kellogg School of Management

Date Written: June 10, 2017

Abstract

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

Chen, Zhuo and Connor, Gregory and Korajczyk, Robert A., A Performance Comparison of Large-n Factor Estimators (June 10, 2017). Review of Asset Pricing Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2380144 or http://dx.doi.org/10.2139/ssrn.2380144

Zhuo Chen

Tsinghua University - PBC School of Finance ( email )

43 Chengfu Road
Beijing, 100083
China

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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 Korajczyk (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

Paper statistics

Downloads
157
Rank
161,187
Abstract Views
1,147