Detecting big structural breaks in large factor models

Liang Chen, Juan Dolado and Jesus Gonzalo

MPRA Paper from University Library of Munich, Germany

Abstract: Constant factor loadings is a standard assumption in the analysis of large dimensional factor models. Yet, this assumption may be restrictive unless parameter shifts are mild. In this paper we develop a new testing procedure to detect big breaks in factor loadings at either known or unknown dates. It is based upon testing for structural breaks in a regression of the first of the ¯r factors estimated by PC for the whole sample on the remaining r−1 factors, where r is chosen using Bai and Ng´s (2002) information criteria. We argue that this test is more powerful than other tests available in the literature on this issue.

Keywords: structural break; large factor model (search for similar items in EconPapers)
JEL-codes: C12 C33 (search for similar items in EconPapers)
Date: 2011-06-08
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Detecting big structural breaks in large factor models (2014)
Working Paper: Detecting Big Structural Breaks in Large Factor Models (2013)
Working Paper: Detecting big structural breaks in large factor models (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:31344

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