Chen, Pu (2012): Common Factors and Specific Factors.
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Abstract
In this paper we study factor models for security returns on financial markets, where some pervasive factors are common across all securities and other pervasive factors prevail only within some groups of securities but not in others. This kind of structured factors allow a more nuanced analysis of determinants of the security returns, in particular, they allow to study clustering structures in security returns as well as their determinants. The clustering structure provides a natural way to group the securities and to interpret common factors and groupspecific factors. We give conditions under which the common factor space and the groupspecific factor spaces can be identified, and propose an effective procedure to estimate the unobservable structure in the factor space. Concretely, the procedure will determine the unknown number of groups, endogenously classify securities into groups, determine the number of common factors across all groups as well as the number of groupspecific factors in each group, and estimate the common factors and the groupspecific factors. The estimated factor structure will provides a more meaningful interpretation of the estimated factors in practical applications.
Item Type:  MPRA Paper 

Original Title:  Common Factors and Specific Factors 
English Title:  Common Factors and Specific Factors 
Language:  English 
Keywords:  Factor Models; Generalized Principal Component Analysis; Model Selection, Multiset Canonical Correlation 
Subjects:  C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63  Computational Techniques ; Simulation Modeling C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C22  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes 
Item ID:  36085 
Depositing User:  Pu Chen 
Date Deposited:  20. Jan 2012 13:24 
Last Modified:  03. Jan 2016 20:02 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/36085 
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