Quasi Maximum Likelihood Estimation for Large-Dimensional Matrix Factor Models

In this study, we introduce a novel approach, called the quasi maximum likelihood estimation (Q-MLE), for estimating large-dimensional matrix factor models. In contrast to the principal component analysis based approach, Q-MLE considers the heteroscedasticity of the idiosyncratic error term, the heteroscedasticity of which is simultaneously estimated with other parameters. Interestingly, under the homoscedasticity assumption of the idiosyncratic error, the Q-MLE estimator encompassed the projected estimator (PE) as a special case. We provide the convergence rates and asymptotic distributions of the Q-MLE estimators under mild conditions. Extensive numerical experiments demonstrate that the Q-MLE method performs better, especially when heteroscedasticity exists. Furthermore, two real examples in finance and macroeconomics reveal factor patterns across rows and columns, which coincide with financial, economic, or geographical interpretations.

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Publication Details

Journal
Journal of Business and Economic Statistics
Published
2024-08-20
DOI
https://doi.org/10.1080/07350015.2024.2393724
Citations
2
Primary Topic
Tensor decomposition and applications
Type
article
Field-Weighted Citation Impact
0.65
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article

Quasi Maximum Likelihood Estimation for Large-Dimensional Matrix Factor Models

Chaofeng Yuan, Xu Sainan, Jianhua Guo
2 citations
Journal of Business and Economic Statistics
Tensor decomposition and applications
0.65
article

Quasi Maximum Likelihood Estimation for Large-Dimensional Matrix Factor Models

Chaofeng Yuan, Xu Sainan, Jianhua Guo
article en
2 citations

Abstract

In this study, we introduce a novel approach, called the quasi maximum likelihood estimation (Q-MLE), for estimating large-dimensional matrix factor models. In contrast to the principal component analysis based approach, Q-MLE considers the heteroscedasticity of the idiosyncratic error term, the heteroscedasticity of which is simultaneously estimated with other parameters. Interestingly, under the homoscedasticity assumption of the idiosyncratic error, the Q-MLE estimator encompassed the projected estimator (PE) as a special case. We provide the convergence rates and asymptotic distributions of the Q-MLE estimators under mild conditions. Extensive numerical experiments demonstrate that the Q-MLE method performs better, especially when heteroscedasticity exists. Furthermore, two real examples in finance and macroeconomics reveal factor patterns across rows and columns, which coincide with financial, economic, or geographical interpretations.

Journal of Business and Economic StatisticsVol. 43(2)
Beijing Technology and Business University (CN), Northeast Normal University (CN), Heilongjiang University (CN)
Decent work and economic growth
Openalex Percentile: Top 37%
Tensor decomposition and applications
0.65
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