A0221
Title: Adaptive factor modeling
Authors: Ostap Okhrin - Technische Universitaet Dresden (Germany) [presenting]
Matthias Fengler - University of Sankt Gallen (Switzerland)
Abstract: The classical factor model is considered within a sequential change point detection framework that discovers local homogeneity intervals. Our tests for structural breaks in the variance (homogeneity in variance) as well as both in the mean and the variance (complete homogeneity) are based on a maximum statistic of sequential generalized likelihood ratios small-sample distribution of which we approximate by means of a multiplier bootstrap. To handle the high-dimensional parameter problem, we suggest a novel multiplicative bias correction for the multiplier bootstrap. Simulations show that the tests perform very well in terms of size and power. In the empirical application, we study structural breaks for moderately sized equity portfolios.
