A self-reliant projected information criterion for the number of factors

Mingjing Chen

Communications in Statistics - Theory and Methods, 2020, vol. 49, issue 10, 2466-2484

Abstract: In this article, we propose a new projected PCA to determine the number of factors. We project variables of interest into the space spanned by cross sectional averages of variables. And then we construct the eigenvalue tests and the information criteria to estimate the number of factors. We derive the large sample consistency and conduct finite sample simulations to demonstrate the better performances of our estimators. In order to show the edge of our estimators in real data analysis, we revisit a large house price data set for which the number of factors is hard to select.

Date: 2020
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DOI: 10.1080/03610926.2019.1576889

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