TY - JOUR
T1 - Estimation and inference of change points in high-dimensional factor models
AU - Bai, Jushan
AU - Han, Xu
AU - Shi, Yutang
PY - 2020/11
Y1 - 2020/11
N2 - In this paper, we consider the estimation of break points in high-dimensional factor models where the unobserved factors are estimated by principal component analysis (PCA). The factor loading matrix is assumed to have a structural break at an unknown time. We establish the conditions under which the least squares (LS) estimator is consistent for the break date. Our consistency result holds for both large and small breaks. We also find the LS estimator's asymptotic distribution. Simulation results confirm that the break date can be accurately estimated by the LS even if the magnitudes of breaks are small. In two empirical applications, we implement the method to estimate break points in the U.S. stock market and U.S. macroeconomy, respectively.
AB - In this paper, we consider the estimation of break points in high-dimensional factor models where the unobserved factors are estimated by principal component analysis (PCA). The factor loading matrix is assumed to have a structural break at an unknown time. We establish the conditions under which the least squares (LS) estimator is consistent for the break date. Our consistency result holds for both large and small breaks. We also find the LS estimator's asymptotic distribution. Simulation results confirm that the break date can be accurately estimated by the LS even if the magnitudes of breaks are small. In two empirical applications, we implement the method to estimate break points in the U.S. stock market and U.S. macroeconomy, respectively.
KW - Break point inference
KW - High-dimensional factor models
KW - Structural changes
UR - http://www.scopus.com/inward/record.url?scp=85084214436&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-85084214436&origin=recordpage
U2 - 10.1016/j.jeconom.2019.08.013
DO - 10.1016/j.jeconom.2019.08.013
M3 - 21_Publication in refereed journal
VL - 219
SP - 66
EP - 100
JO - Journal of Econometrics
JF - Journal of Econometrics
SN - 0304-4076
IS - 1
ER -