Inference in Group Factor Models with an Application to Mixed Frequency Data

48 Pages Posted: 13 Feb 2016 Last revised: 2 Feb 2019

See all articles by Elena Andreou

Elena Andreou

University of Cyprus - Department of Economics

Patrick Gagliardini

USI Università della Svizzera italiana; Swiss Finance Institute

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Mirco Rubin

University of Bristol

Multiple version iconThere are 2 versions of this paper

Date Written: January 5, 2019

Abstract

We derive asymptotic properties of estimators and test statistics to determine - in a grouped data setting - common versus group-specific factors. Despite the fact that our test statistic for the number of common factors, under the null, involves a parameter at the boundary (related to unit canonical correlations) we derive a parameter-free asymptotic Gaussian distribution. We show how the group factor setting applies to mixed frequency data. As an empirical illustration we address the question whether Industrial Production (IP) is still the dominant factor driving the U.S. economy using a mixed-frequency data panel of IP and non-IP sectors. We find that a single common factor explains 89% of IP output growth and 61% of total GDP growth despite the diminishing role of manufacturing.

Keywords: Large Panel, Unobservable pervasive factors, Mixed frequency, Canonical correlations, Output growth

JEL Classification: C23, C38, C55, C12, E32

Suggested Citation

Andreou, Elena and Gagliardini, Patrick and Ghysels, Eric and Rubin, Mirco, Inference in Group Factor Models with an Application to Mixed Frequency Data (January 5, 2019). Swiss Finance Institute Research Paper No. 16-11. Available at SSRN: https://ssrn.com/abstract=2731334 or http://dx.doi.org/10.2139/ssrn.2731334

Elena Andreou

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus
+357 2 892449 (Phone)
+357 2 892432 (Fax)

Patrick Gagliardini

USI Università della Svizzera italiana ( email )

Via Buffi 13
Lugano, TN 6900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Eric Ghysels (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://www.unc.edu/~eghysels/

Mirco Rubin

University of Bristol ( email )

School of Economics, Finance and Management
Priory Road Complex, Priory Road
Bristol, BS8 1TU
United Kingdom
+44 (0) 117 3940488 (Phone)

HOME PAGE: http://https://sites.google.com/site/mircorubin/

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