| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5060268 | Economics Letters | 2012 | 4 Pages |
Abstract
A simple data-dependent filtering method is proposed before applying the Bai-Ng method to estimate the number of common factors in the conventional approximate factor model. The asymptotic justification is provided and the finite-sample performance is examined.
⺠Bai-Ng factor number estimates can be biased upwards under serial dependence. ⺠We suggest filtering the panel with an AR(1) model before applying Bai-Ng criteria. ⺠The method is consistent under a broader range of serial dependence processes. ⺠The method performs well in small-sample Monte Carlo simulations.
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Authors
Ryan Greenaway-McGrevy, Chirok Han, Donggyu Sul,