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On the penalized maximum likelihood estimation of high-dimensional approximate factor model

  • Shaoxin WangEmail author
  • Hu Yang
  • Chaoli Yao
Original Paper
  • 48 Downloads

Abstract

In this paper, we mainly focus on the penalized maximum likelihood estimation of the high-dimensional approximate factor model. Since the current estimation procedure can not guarantee the positive definiteness of the error covariance matrix, by reformulating the estimation of error covariance matrix and based on the lagrangian duality, we propose an accelerated proximal gradient (APG) algorithm to give a positive definite estimate of the error covariance matrix. Combined the APG algorithm with EM method, a new estimation procedure is proposed to estimate the high-dimensional approximate factor model. The new method not only gives positive definite estimate of error covariance matrix but also improves the efficiency of estimation for the high-dimensional approximate factor model. Although the proposed algorithm can not guarantee a global unique solution, it enjoys a desirable non-increasing property. The efficiency of the new algorithm on estimation and forecasting is also investigated via simulation and real data analysis.

Keywords

Error covariance matrix Positive definiteness EM precedure Accelerated proximal gradient algorithm 

Notes

Acknowledgements

The authors wish to thank the anonymous reviewers and the Editor for their helpful and very detailed comments, which have led a substantial improvement to the presentation of their paper. They also appreciate Yuan Liao for sharing the code used in Bai and Liao (2016).

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of StatisticsQufu Normal UniversityQufuPeople’s Republic of China
  2. 2.College of Mathematics and StatisticsChongqing UniversityChongqingPeople’s Republic of China

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