A0173
Title: On the factor structure of high-dimensional asset markets
Authors: Cy Sin - National Tsing Hua University (Taiwan) [presenting]
Abstract: The study of factor structure on asset markets can be traced back to the seventies. It was shown that given a factor structure, the mean returns of financial assets are approximately linear functions of the factor loadings. Assuming a market with many assets which results in risk-free investment opportunities, it was imposed the no arbitrage constraint and it was concluded that the corresponding d eigenvectors converge and play the role of factor loadings. In view of the recent flourishing literature on high-dimensional models,the so-called ``krigings over space and time'' factor model is extended in three-fold: (i) The number of assets goes to infinity; (ii) The number of factors d is allowed to go to infinity; and (iii) Macroeconomic and fundamental factors are incorporated. Our model is applied to the stocks listed in the Taiwan Stock Exchange.
