Confidence intervals in regressions with estimated factors and idiosyncratic components

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Fosten, Jack (2017) Confidence intervals in regressions with estimated factors and idiosyncratic components. Economics Letters, 157. 71–74. ISSN 0165-1765

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Abstract

This paper shows that HAC standard errors must be adjusted when constructing confidence intervals in regressions involving both the factors and idiosyncratic components estimated from a big dataset. This result is in contrast to the seminal result of Bai and Ng (2006) where the assumption that √T/N→0 is sufficient to eliminate the effect of estimation error, where T and N are the time-series and cross-sectional dimensions. Simulations show vast improvements in the coverage rates of the adjusted confidence intervals over the unadjusted ones.

Item Type:	Article
Uncontrolled Keywords:	factor model,idiosyncratic component,inference,confidence intervals
Faculty \ School:	Faculty of Social Sciences > School of Economics
Related URLs:	http://www.sciencedirect.com/science/art...
Depositing User:	Pure Connector
Date Deposited:	31 May 2017 08:31
Last Modified:	22 Oct 2022 02:42
URI:	https://ueaeprints.uea.ac.uk/id/eprint/63621
DOI:	10.1016/j.econlet.2017.05.034

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