Prediction When Factors are Weak
弱因子情形下的预测
In economic forecasting, principal component analysis (PCA) has been the most prevalent approach to the recovery of factors, which summarize information in a large set of predictors. Nevertheless, the theoretical justification of this approach often relies on a convenient and critical assumption that factors are pervasive. To incorporate information from weaker factors, we propose a new prediction procedure based on supervised PCA, which iterates over selection, PCA, and…