Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jan, 2003, Volume 71, Issue 1

Inferential Theory for Factor Models of Large Dimensions

https://doi.org/10.1111/1468-0262.00392
p. 135-171

Jushan Bai

This paper develops an inferential theory for factor models of large dimensions. The principal components estimator is considered because it is easy to compute and is asymptotically equivalent to the maximum likelihood estimator (if normality is assumed). We derive the rate of convergence and the limiting distributions of the estimated factors, factor loadings, and common components. The theory is developed within the framework of large cross sections () and a large time dimension (), to which classical factor analysis does not apply.


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