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Bayesian Estimation of the Eigenstructure in High-Dimensional Approximate Factor Models
[Submitted on 23 Jun 2026] · 2026-06-24 · via stat updates on arXiv.org

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Abstract:High-dimensional economic datasets often display strong co-movement driven by a small number of latent factors, which are typically modeled using approximate factor models. When the number of variables is large relative to the sample size, the eigenvalues and eigenvectors of the sample covariance matrix are severely distorted, which in turn makes principal component based estimators of the factor structure unstable. To address the high-dimensional problem, we propose a Bayesian model for approximate factor structures. We show that the posterior convergence rate is of the same order as benchmark results for high-dimensional spiked covariance models. Simulation studies show that the proposed method more accurately recovers the factor structure in approximate factor models than existing methods. Real data analyses on macro--financial datasets illustrate that the proposed method provides interpretable estimates of latent factor structure and performs competitively in forecasting exercises.

Submission history

From: Seongmin Kim [view email]
[v1] Tue, 23 Jun 2026 14:46:07 UTC (840 KB)