Weight-calibrated estimation for factor models of high-dimensional time series

Xinghao Qiao, Zihan Wang, Qiwei Yao and Bo Zhang

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The factor modeling for high-dimensional time series is powerful in discovering latent common components for dimension reduction and information extraction. Most available estimation methods can be divided into two categories: the covariance-based under asymptotically-identifiable assumption and the autocovariance-based with white idiosyncratic noise. This article follows the autocovariance-based framework and develops a novel weight-calibrated method to improve the estimation performance. It adopts a linear projection to tackle high-dimensionality, and employs a reduced-rank autoregression formulation. The asymptotic theory of the proposed method is established, relaxing the assumption on white noise. Additionally, we make the first attempt in the literature by providing a systematic theoretical comparison among the covariance-based, the standard autocovariance-based, and our proposed weight-calibrated autocovariance-based methods in the presence of factors with different strengths. Extensive simulations are conducted to showcase the superior finite-sample performance of our proposed method, as well as to validate the newly established theory. The superiority of our proposal is further illustrated through the analysis of one financial and one macroeconomic datasets. Supplementary materials for this article are available online, including a standardized description of the materials available for reproducing the work.

Keywords: autocovariance; covariance; eigenanalysis; factor strength; reduced rank autoregression; weight matrix (search for similar items in EconPapers)
JEL-codes: C1 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2026-07-27
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Published in Journal of the American Statistical Association, 27, July, 2026. ISSN: 0162-1459

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:138585

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