Likelihood Inferences for High-Dimensional Factor Analysis of Time Series With Applications in Finance

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)866-884
Journal / PublicationJournal of Computational and Graphical Statistics
Issue number3
Publication statusPublished - 3 Jul 2015
Externally publishedYes


This article investigates likelihood inferences for high-dimensional factor analysis of time series data. We develop a matrix decomposition technique to obtain expressions of the likelihood functions and its derivatives. With such expressions, the traditional delta method that relies heavily on score function and Hessian matrix can be extended to high-dimensional cases. We establish asymptotic theories, including consistency and asymptotic normality. Moreover, fast computational algorithms are developed for estimation. Applications to high-dimensional stock price data and portfolio analysis are discussed. The technical proofs of the asymptotic results and the computer codes are available online.

Research Area(s)

  • Arbitrage pricing theory, Factor loadings, Factors, Maximum likelihood estimation, Newton method, State-space model

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