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Detecting big structural breaks in large factor models

Abstract:

Time invariance of factor loadings is a standard assumption in the analysis of large factor models. Yet, this assumption may be restrictive unless parameter shifts are mild (i.e., local to zero). In this paper we develop a new testing procedure to detect big breaks in these loadings at either known or unknown dates. It relies upon testing for parameter breaks in a regression of one of the factors estimated by Principal Components analysis on the remaining estimated factors, where the numbe...

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Publication status:
Published

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Publisher:
University of Oxford
Series:
Department of Economics Discussion Paper Series
Publication date:
2013-10-14
Paper number:
677
Keywords:
Pubs id:
1143736
Local pid:
pubs:1143736
Deposit date:
2020-12-15

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