A note on factor models with latent group structures

Yulin Bian and Liangjun Su ()

Economics Letters, 2025, vol. 252, issue C

Abstract: This paper studies a factor model with latent group structures. Given initial PCA estimates, we propose to apply the sequential binary segmentation algorithm (SBSA) to estimate the group structures and re-estimate the factors and loadings. In the case of unknown number of groups, we propose to estimate it via an information criterion. We establish the asymptotic properties of the proposed estimators. Simulations demonstrate that our proposed estimator outperforms some competitive approaches in finite samples.

Keywords: Factor model; Latent group structures; Sequential binary segmentation algorithm (search for similar items in EconPapers)
JEL-codes: C13 C23 C33 C55 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:252:y:2025:i:c:s0165176525001946

DOI: 10.1016/j.econlet.2025.112357

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