An Adaptive Residual-Based Test for Factor Structure

Bibliographic Data

ID19417360
AuthorsYufeng Mao (0000-0002-4598-2939, Fudan University, corresponding author), Yayi Yan (0000-0002-9220-1314, Shanghai University of Finance and Economics)
Year2026
Volume44
Issue2
Pages691-702
Publication date2026-04-03
Open AccessNo
TypeARTICLE
VenueJournal of Business and Economic Statistics (JOURNAL)
Journal identifiersISSN: 0735-0015 • E-ISSN: 1537-2707
PublisherInforma UK Limited (PUBLISHER • GB)
DOI10.1080/07350015.2025.2548893
OpenAlexW4413509366
LanguageEN
References cited53

This article addresses the critical issue of testing static approximate factor models against unspecified alternatives by proposing an adaptive residual-based test. Our methodology is versatile, encompassing alternatives such as factor models with nonlinear factor structures, conditional factor models, and factor models with structural breaks. We first establish the asymptotic properties of a so-called fixed bandwidth-based test, showing its asymptotic normality and power against local alternatives. To enhance the size and power properties while addressing the practical limitations of the fixed bandwidth approach, we propose an adaptive test and establish its asymptotic size correctness and consistency. Simulation studies demonstrate its superior size and power. We further illustrate the practical relevance of our test by applying it to three empirical studies concerning real and financial variables in the global economy

Algorithm · Computerized adaptive testing · Programming language · Reliability engineering · Residual · Statistics · Computer Science · Educational Technology and Assessment · Engineering · Mathematics · Nuclear reactor physics and engineering · Technology and Data Analysis · Geology

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