Estimation and inference in factor copula models with exogenous covariates

Alexander Mayer and Dominik Wied

Journal of Econometrics, 2023, vol. 235, issue 2, 1500-1521

Abstract: A factor copula model is proposed in which factors are either simulable or estimable from exogenous information. Point estimation and inference are based on a simulated methods of moments (SMM) approach with non-overlapping simulation draws. Consistency and limiting normality of the estimator is established and the validity of bootstrap standard errors is shown. Doing so, previous results from the literature are verified under low-level conditions imposed on the individual components of the factor structure. Monte Carlo evidence confirms the accuracy of the asymptotic theory in finite samples and an empirical application illustrates the usefulness of the model to explain the cross-sectional dependence between stock returns.

Keywords: Factor analysis; Simulation estimator; Empirical process; Dependence modeling (search for similar items in EconPapers)
JEL-codes: C13 C15 C22 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Estimation and Inference in Factor Copula Models with Exogenous Covariates (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:235:y:2023:i:2:p:1500-1521

DOI: 10.1016/j.jeconom.2023.01.003

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