Bootstrap inference in factor-augmented regressions with weak factors

原文摘要

In this paper, we develop bootstrap methods for factor-augmented regressions with potentially weak common components, allowing signal eigenvalues to diverge at heterogeneous rates $N^{α_k}$, where $0<α_k\leq1$, $k=1,\ldots,r$. The regression estimator targets a rotation of the latent parameter vector that may be data dependent, while factor estimation can induce asymptotic bias. The proposed procedure directly constructs the rotation-specific target in the bootstrap world, avoiding the additional randomness induced by existing bootstrap methods. Bootstrap distributional validity is established for two data-dependent targets and a signal-dependent population target, where studentization provides asymptotically pivotal statistics for both analytical and bootstrap bias-corrected estimators. The analysis also distinguishes distributional approximation relative to a data-dependent target from inference on fixed population restrictions and introduces a bootstrap diagnostic for rotation uncertainty (RU) when signal eigenvalues are close. Monte Carlo experiments show improved bias correction, gains from bootstrap distributional approximation, and demonstrate that inference distortions from small signal eigengaps dissipate quickly with $T$ for fixed targets, in contrast to the persistent distortions under random rotations. An application to excess bond return predictability illustrates the practical importance of bootstrap distributional approximation and rotation uncertainty for inference on individual factor coefficients.

摘要来源：arXiv