EconPapers    
Economics at your fingertips  
 

Large-dimensional factor modeling based on high-frequency observations

Markus Pelger

Journal of Econometrics, 2019, vol. 208, issue 1, 23-42

Abstract: This paper develops a statistical theory to estimate an unknown factor structure based on financial high-frequency data. We derive an estimator for the number of factors and consistent and asymptotically mixed-normal estimators of the loadings and factors under the assumption of a large number of cross-sectional and high-frequency observations. The estimation approach can separate factors for continuous and rare jump risk. The estimators for the loadings and factors are based on the principal component analysis of the quadratic covariation matrix. The estimator for the number of factors uses a perturbed eigenvalue ratio statistic. In an empirical analysis of the S&P 500 firms we estimate four stable continuous systematic factors, which can be approximated very well by a market and industry portfolios. Jump factors are different from the continuous factors.

Keywords: Systematic risk; High-dimensional data; High-frequency data; Latent factor model; PCA; Jumps; Semimartingales; Approximate factor model; Number of factors (search for similar items in EconPapers)
JEL-codes: C14 C38 C55 C58 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304407618301696
Full text for ScienceDirect subscribers only

Related works:
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:eee:econom:v:208:y:2019:i:1:p:23-42

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-01-12
Handle: RePEc:eee:econom:v:208:y:2019:i:1:p:23-42