Characterizing correlation matrices that admit a clustered factor representation

Chen Tong and Peter Hansen

Economics Letters, 2023, vol. 233, issue C

Abstract: The Clustered Factor (CF) model is commonly used to parametrize block correlation matrices. We show that the CF model imposes additional superfluous restrictions. This can be avoided by a different parametrization, based on the logarithmic block correlation matrix.

Keywords: Block correlation matrix; Copula; Clustering; Factor models (search for similar items in EconPapers)
JEL-codes: C38 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Characterizing Correlation Matrices that Admit a Clustered Factor Representation (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004597

DOI: 10.1016/j.econlet.2023.111433

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