B1645
Title: Rank and factor loadings estimation in time series tensor factor model by pre-averaging
Authors: Weilin Chen - London School of Economics and Political Science (United Kingdom) [presenting]
Clifford Lam - London School of Economics and Political Science (United Kingdom)
Abstract: As a major dimension reduction tool, the idiosyncratic components of a tensor time series factor model can exhibit serial correlations, especially in financial and economic applications. This rules out a lot of state-of-the-art methods that assume white idiosyncratic components, or even independent/Gaussian data. While the traditional higher-order orthogonal iteration (HOOI) is proved to be convergent to a set of factor loading matrices, the closeness of them to the true underlying factor loading matrices is, in general, not established, or only under i.i.d. Gaussian noises. Under the presence of serial and cross-correlations in the idiosyncratic components and time series variables with only bounded fourth-order moments, we propose a pre-averaging method that accumulates information from tensor fibres for better estimating all the factor loading spaces. The estimated directions corresponding to the strongest factors are then used for projecting the data for a potentially improved re-estimation of the factor loading spaces themselves, with theoretical guarantees and rate of convergence spelt out. We also propose a new rank estimation method which utilises correlation information from the projected data. Extensive simulations are performed and compared to other state-of-the-art or traditional alternatives. A set of matrix-valued portfolio return data is also analysed.
