Factors in prominent asset pricing models are positively autocorrelated. We derive a transformation that turns an autocorrelated factor to a ``time-series efficient'' factor. Time-series efficient factors earn significantly higher Sharpe ratios than the original factors and contain all the...

The Internet Appendix collects the proofs and additional results that support the main text. We show in simulations that our estimators perform well relative to alternative estimators and can be improved even further with an iterative approach. We also confirm that the distribution results,...

This paper develops the inferential theory for latent factor models estimated from large dimensional panel data with missing observations. We propose an easy-to-use all-purpose estimator for a latent factor model by applying principal component analysis to an adjusted covariance matrix estimated...

Standard factor models focus on returns and leave prices undetermined. Thisapproach ignores information contained in the time-series of asset prices, relevantfor long-term investors and for detecting potential mispricing. To address this issue,we propose a novel (co-)integrated methodology to...

High dimensional composite index makes experts' preferences in setting weights a hard task. In the literature, one of the approaches to derive weights from a data set is Principal Component or Factor Analysis that, although conceptually different, they are similar in results when FA is based on...

This paper considers the estimation of factor memories in the context of a high-dimensional factor model. Both factors and idiosyncratic error terms are potentially non-stationary fractional integrated processes. We propose a three-step procedure to estimate the latent factors. We then apply the...

We propose a dynamic factor model which we use to analyze the relationship between education participation and national unemployment, as well as to forecast the number of students across the many different types of education. By clustering the factor loadings associated with the dynamic...