High Dimensional Latent Panel Quantile Regression with an Application to Asset Pricing

Alexandre Belloni, Mingli Chen, Oscar Hernan Madrid Padilla and Wang, Zixuan (Kevin)
Additional contact information
Alexandre Belloni: Fuqua Business School, Duke University
Oscar Hernan Madrid Padilla: Department of Statistics, University of California, Los Angeles
Wang, Zixuan (Kevin): Harvard University

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We propose a generalization of the linear panel quantile regression model to accommodate both sparse and dense parts: sparse means while the number of covariates available is large, potentially only a much smaller number of them have a nonzero impact on each conditional quantile of the response variable; while the dense part is represented by a low-rank matrix that can be approximated by latent factors and their loadings. Such a structure poses problems for traditional sparse estimators, such as the `1-penalised Quantile Regression, and for traditional latent factor estimator, such as PCA. We propose a new estimation procedure, based on the ADMM algorithm, that consists of combining the quantile loss function with `1 and nuclear norm regularization. We show, under general conditions, that our estimator can consistently estimate both the nonzero coefficients of the covariates and the latent low-rank matrix. Our proposed model has a “Characteristics + Latent Factors” Asset Pricing Model interpretation: we apply our model and estimator with a large-dimensional panel of financial data and find that (i) characteristics have sparser predictive power once latent factors were controlled (ii) the factors and coefficients at upper and lower quantiles are different from the median.

Keywords: High-dimensional quantile regression; factor model; nuclear norm regularization; panel data; asset pricing; characteristic-based model (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/w ... werp_1230_chen-1.pdf

Related works:
Working Paper: High Dimensional Latent Panel Quantile Regression with an Application to Asset Pricing (2022)
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:wrk:warwec:1230

Access Statistics for this paper

More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash ().