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Inference on common parameters in panel data models with individual-specific fixed effects is a classic example of Neyman and Scott's (Econometrica 36:1-32, 1948) incidental parameter problem (IPP). One solution to this IPP is functional differencing (Bonhomme in Econometrica 80(4):1337-1385,...
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This chapter surveys recent econometric methodologies for inference in large dimensional conditional factor models in finance. Changes in the business cycle and asset characteristics induce time variation in factor loadings and risk premia to be accounted for. The growing trend in the use of...
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We build a simple diagnostic criterion for approximate factor structure in large panel datasets. Given observable factors, the criterion checks whether the errors are weakly cross-sectionally correlated or share at least one unobservable common factor (interactive effects). A general version...
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We develop new higher-order asymptotic techniques for the Gaussian maximum likelihood estimator of the parameters in a spatial panel data model, with fixed effects, time-varying covariates, and spatially correlated errors. We introduce a new saddlepoint density and tail area approximation to...
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We develop a new approach for evaluating performance across hedge funds. Our approach allows for performance comparisons between models that are misspecified – a common feature given the numerous factors that drive hedge fund returns. The empirical results show that the standard models used in...
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