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Article: Spurious Factor Analysis
Title | Spurious Factor Analysis |
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Authors | |
Issue Date | 2021 |
Publisher | Econometric Society: Econometrica. The Journal's web site is located at https://www.econometricsociety.org/publications/econometrica/aims-and-scope |
Citation | Econometrica, 2021, v. 89 n. 2, p. 591-614 How to Cite? |
Abstract | This paper draws parallels between the principal components analysis of factorless high‐dimensional nonstationary data and the classical spurious regression. We show that a few of the principal components of such data absorb nearly all the data variation. The corresponding scree plot suggests that the data contain a few factors, which is corroborated by the standard panel information criteria. Furthermore, the Dickey–Fuller tests of the unit root hypothesis applied to the estimated “idiosyncratic terms” often reject, creating an impression that a few factors are responsible for most of the nonstationarity in the data. We warn empirical researchers of these peculiar effects and suggest to always compare the analysis in levels with that in differences. |
Persistent Identifier | http://hdl.handle.net/10722/285066 |
ISSN | 2023 Impact Factor: 6.6 2023 SCImago Journal Rankings: 17.701 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Onatski, A | - |
dc.contributor.author | Wang, C | - |
dc.date.accessioned | 2020-08-07T09:06:16Z | - |
dc.date.available | 2020-08-07T09:06:16Z | - |
dc.date.issued | 2021 | - |
dc.identifier.citation | Econometrica, 2021, v. 89 n. 2, p. 591-614 | - |
dc.identifier.issn | 0012-9682 | - |
dc.identifier.uri | http://hdl.handle.net/10722/285066 | - |
dc.description.abstract | This paper draws parallels between the principal components analysis of factorless high‐dimensional nonstationary data and the classical spurious regression. We show that a few of the principal components of such data absorb nearly all the data variation. The corresponding scree plot suggests that the data contain a few factors, which is corroborated by the standard panel information criteria. Furthermore, the Dickey–Fuller tests of the unit root hypothesis applied to the estimated “idiosyncratic terms” often reject, creating an impression that a few factors are responsible for most of the nonstationarity in the data. We warn empirical researchers of these peculiar effects and suggest to always compare the analysis in levels with that in differences. | - |
dc.language | eng | - |
dc.publisher | Econometric Society: Econometrica. The Journal's web site is located at https://www.econometricsociety.org/publications/econometrica/aims-and-scope | - |
dc.relation.ispartof | Econometrica | - |
dc.rights | The copyright to this article is held by the Econometric Society, http://www.econometricsociety.org/. | - |
dc.title | Spurious Factor Analysis | - |
dc.type | Article | - |
dc.identifier.email | Wang, C: stacw@hku.hk | - |
dc.identifier.authority | Wang, C=rp02404 | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.3982/ECTA16703 | - |
dc.identifier.scopus | eid_2-s2.0-85102781885 | - |
dc.identifier.hkuros | 312275 | - |
dc.identifier.hkuros | 327062 | - |
dc.identifier.volume | 89 | - |
dc.identifier.issue | 2 | - |
dc.identifier.spage | 591 | - |
dc.identifier.epage | 614 | - |
dc.identifier.isi | WOS:000631036300003 | - |
dc.publisher.place | United Kingdom | - |
dc.identifier.issnl | 0012-9682 | - |