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

See all articles by Zhuo Chen

Zhuo Chen

Tsinghua University; 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

Date Written: July 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 (July 10, 2017). Review of Asset Pricing Studies, Volume 8, Number 1 (2018): 153-182.. Available at SSRN: https://ssrn.com/abstract=2380144 or http://dx.doi.org/10.2139/ssrn.2380144

Zhuo Chen

Tsinghua University ( 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 A. Korajczyk (Contact Author)

Northwestern University ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208-0898
United States
847-491-8336 (Phone)
847-491-7781 (Fax)

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
28
Abstract Views
1,627
PlumX Metrics