This paper studies the generalized principal component estimator (GPCE) of Choi (2007) for the factor model Xt = Ft + et where Ft is a unit-root process. First, this paper derives asymptotic distributions of the GPCEs of the factor and factor-loading spaces which show that the GPCE enjoys an...

This paper considers the factor model Xt = Ft + et. Assuming a nor- mal distribution for the idiosyncratic error et conditional on the factors fFtg, conditional maximum likelihood estimators of the factor and factor- loading spaces are derived. These estimators are called generalized prin- cipal...