Abstract
This article considers forecasting a single time series when there are many predictors (N) and time series observations (T). When the data follow an approximate factor model, the predictors can be summarized by a small number of indexes, which we estimate using principal components. Feasible forecasts are shown to be asymptotically efficient in the sense that the difference between the feasible forecasts and the infeasible forecasts constructed using the actual values of the factors converges in probability to 0 as both N and T grow large. The estimated factors are shown to be consistent, even in the presence of time variation in the factor model.
Original language | English (US) |
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Pages (from-to) | 1167-1179 |
Number of pages | 13 |
Journal | Journal of the American Statistical Association |
Volume | 97 |
Issue number | 460 |
DOIs | |
State | Published - Dec 2002 |
All Science Journal Classification (ASJC) codes
- Statistics and Probability
- Statistics, Probability and Uncertainty
Keywords
- Factor models
- Forecasting
- Principal components