High-Dimensional Factor Models with an Application to Mutual Fund Characteristics / Martin Lettau.

Format:

Book

Author/Creator:

Lettau, Martin.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29833.

NBER working paper series no. w29833

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

This paper considers extensions of two-dimensional factor models to higher-dimensional data represented as tensors. I describe decompositions of tensors that generalize the standard matrix singular value decomposition and principal component analysis to higher dimensions. I estimate the model using a three-dimensional data set consisting of 25 characteristics of 1,342 mutual funds observed over 34 quarters. The tensor factor models reduce the data dimensionality by 97% while capturing 93% of the variation of the data. I relate higher-dimensional tensor models to standard two-dimensional models and show that the components of the model have clear economic interpretations.

Notes:

Print version record

March 2022.