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NEAREST COMOMENT ESTIMATION WITH UNOBSERVED FACTORS

Kris Boudt, Dries Cornilly () and Tim Verdonck
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Tim Verdonck: -

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: We propose a minimum distance estimator for the higher-order comoments of a multivariate distribution exhibiting a lower dimensional latent factor structure. We derive the in uence function of the proposed estimator and prove its consistency and asymptotic normality. The simulation study confirms the large gains in accuracy compared to the traditional sample comoments. The empirical usefulness of the novel framework is shown in applications to portfolio allocation under non-Gaussian objective functions and to the extraction of factor loadings in a dataset with mental ability scores.

Keywords: Higher-order multivariate moments; latent factor model; minimum distance estimation; risk assessment; structural equation modelling. (search for similar items in EconPapers)
JEL-codes: C10 C13 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ore and nep-rmg
Date: 2019-04
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:19/970

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