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Regime-switching factor models in which the number of factors defines the regime

Adriana S. Cordis and Chris Kirby

Economics Letters, 2011, vol. 112, issue 2, 198-201

Abstract: We develop regime-switching factor models in which the number of factors determines the operative economic regime. To illustrate the proposed methodology, we analyze the covariance structure of a widely studied set of 25 equity portfolios.

Keywords: Dynamic; factor; analysis; Covariance; matrix; estimation; Correlation; matrix; estimation (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:eee:ecolet:v:112:y:2011:i:2:p:198-201