A Performance Comparison of Large-n Factor Estimators

Zhuo Chen, Gregory Connor and Robert Korajczyk

The Review of Asset Pricing Studies, 2018, vol. 8, issue 1, 153-182

Abstract: We evaluate the performance of various methods for estimating factor returns in an approximate factor model. Differences across estimators are most pronounced when there is cross-sectional heteroscedasticity or when cross-sectional sample sizes, n, have fewer than 4,000 assets. Estimators incorporating either cross-sectional or time-series heteroscedasticity outperform the other estimators when those types of heteroscedasticity are present. The differences are most pronounced when the cross-sectional sample is small.Received December 2, 2015; editorial decision May 16, 2017 by Editor Jeffrey Pontiff.

Date: 2018
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Working Paper: A Performance Comparison of Large-n Factor Estimators (2014)
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