Nonparametric estimation of functional dynamic factor model

Israel Martínez-Hernández, Jesus Gonzalo and Graciela González-Farías

Journal of Nonparametric Statistics, 2022, vol. 34, issue 4, 895-916

Abstract: Data can be assumed to be continuous functions defined on an infinite-dimensional space for many phenomena. However, the infinite-dimensional data might be driven by a small number of latent variables. Hence, factor models are relevant for functional data. In this paper, we study functional factor models for time-dependent functional data. We propose nonparametric estimators under stationary and nonstationary processes. We obtain estimators that consider the time-dependence property. Specifically, we use the information contained in the covariances at different lags. We show that the proposed estimators are consistent. Through Monte Carlo simulations, we find that our methodology outperforms estimators based on functional principal components. We also apply our methodology to monthly yield curves. In general, the suitable integration of time-dependent information improves the estimation of the latent factors.

Date: 2022
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DOI: 10.1080/10485252.2022.2080825

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