Date of Award
Master of Science (MS)
Gallagher , Colin
Gerard , Patrick
Approximate factor models are popular in finance and economics. A key to effectively utilizing such a model is to accurately estimate the error covariance matrix. Errors related to certain predictors are expected to be correlated and this must be modeled effectively. Adaptive thresholding is a method for estimating the error covariance matrix of such a model. This method is described in detail and a simulation study sheds light on the behavior of this method under different sample sizes and parameterizations.
Chimenti, Paul, "Error Covariance Matrix Estimation in High Dimensional Approximate Factor Models Using Adaptive Thresholding: A Simulation Study" (2013). All Theses. 1577.