A geometric approach to factor model identification

Sylvia Kaufmann and Markus Pape

We use the geometric representation of factor models to represent the factor loading structure by sets corresponding to unit-specific non-zero loadings. We formulate global and local, rotational identification conditions based on set conditions. We propose two algorithms to efficiently evaluate Sato (1992)'s counting rule. We demonstrate the efficiency and the performance of the algorithms by a simulation study. An application to exchange rate returns illustrates the approach.

Year of publication:	[2025]
Authors:	Kaufmann, Sylvia ; Pape, Markus
Publisher:	[Gerzensee] : [Study Center Gerzensee]
Subject:	Factor model \| Global and local identification \| Set representation

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