Wavelet Estimation for Factor Models with Time-Varying Loadings
Methodology
2021-10-12 v1 Statistics Theory
Statistics Theory
Abstract
We introduce a high-dimensional factor model with time-varying loadings. We cover both stationary and nonstationary factors to increase the possibilities of applications. We propose an estimation procedure based on two stages. First, we estimate common factors by principal components. In the second step, considering the estimated factors as observed, the time-varying loadings are estimated by an iterative generalized least squares procedure using wavelet functions. We investigate the finite sample features by some Monte Carlo simulations. Finally, we apply the model to study the Nord Pool power market's electricity prices and loads.
Cite
@article{arxiv.2110.04416,
title = {Wavelet Estimation for Factor Models with Time-Varying Loadings},
author = {Duván Humberto Cataño and C. Vladimir Rodríguez-Caballero and Daniel Peña and Chang Chiann},
journal= {arXiv preprint arXiv:2110.04416},
year = {2021}
}
Comments
31 pages, 11 figures