Shrinkage estimation of multiple threshold factor models

Chenchen Ma and Yundong Tu

Journal of Econometrics, 2023, vol. 235, issue 2, 1876-1892

Abstract: This paper proposes a multiple threshold factor model to enhance the flexibility in modeling the underlying regime switching mechanism for high dimensional time series. The factor loadings are assumed to switch between different regimes according to the value of a threshold variable. A novel estimation procedure is proposed to consistently estimate the multiple thresholds with the aid of sorting operation, principal component analysis and shrinkage estimation, which is practically easy-to-implement and computationally efficient. Furthermore, asymptotic properties for the multiple threshold estimators are established, together with other theoretical results. Monte Carlo simulations demonstrate that the procedure works well in finite samples. The U.S. data sets are analyzed with the proposed model to illustrate the threshold effect of economy policy uncertainty on the financial market.

Keywords: Dimension reduction; Group Lasso; Information criterion; Nonlinear factor model; Principal component analysis (search for similar items in EconPapers)
JEL-codes: C22 C33 C38 C51 G10 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304407623000489
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:235:y:2023:i:2:p:1876-1892

DOI: 10.1016/j.jeconom.2023.02.002

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().