TY - JOUR
T1 - A Factor-Adjusted Multiple Testing Procedure With Application to Mutual Fund Selection
AU - Lan, Wei
AU - Du, Lilun
PY - 2019/1
Y1 - 2019/1
N2 - In this article, we propose a factor-adjusted multiple testing (FAT) procedure based on factor-adjusted p-values in a linear factor model involving some observable and unobservable factors, for the purpose of selecting skilled funds in empirical finance. The factor-adjusted p-values were obtained after extracting the latent common factors by the principal component method. Under some mild conditions, the false discovery proportion can be consistently estimated even if the idiosyncratic errors are allowed to be weakly correlated across units. Furthermore, by appropriately setting a sequence of threshold values approaching zero, the proposed FAT procedure enjoys model selection consistency. Extensive simulation studies and a real data analysis for selecting skilled funds in the U.S. financial market are presented to illustrate the practical utility of the proposed method. Supplementary materials for this article are available online. ©2019 American Statistical Association.
AB - In this article, we propose a factor-adjusted multiple testing (FAT) procedure based on factor-adjusted p-values in a linear factor model involving some observable and unobservable factors, for the purpose of selecting skilled funds in empirical finance. The factor-adjusted p-values were obtained after extracting the latent common factors by the principal component method. Under some mild conditions, the false discovery proportion can be consistently estimated even if the idiosyncratic errors are allowed to be weakly correlated across units. Furthermore, by appropriately setting a sequence of threshold values approaching zero, the proposed FAT procedure enjoys model selection consistency. Extensive simulation studies and a real data analysis for selecting skilled funds in the U.S. financial market are presented to illustrate the practical utility of the proposed method. Supplementary materials for this article are available online. ©2019 American Statistical Association.
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U2 - 10.1080/07350015.2017.1294078
DO - 10.1080/07350015.2017.1294078
M3 - RGC 21 - Publication in refereed journal
SN - 0735-0015
VL - 37
SP - 147
EP - 157
JO - Journal of Business & Economic Statistics
JF - Journal of Business & Economic Statistics
IS - 1
ER -