sigma_estim_efm: Exact Factor Model (EFM) Covariance Estimation

In antshi/CovEstim: (High-dimensional) Covariance Estimation

Description

Computes the EFM estimator of the covariance matrix.

Usage

sigma_estim_efm(data, factors = NULL)

Arguments

data	an nxp data matrix.
factors	a nxf matrix with factors. Default value is NULL and the factor is equal to the cross-sectional average of all the variables in the data.

Details

The EFM covariance estimator is calculated with the following formula:

\hat{Σ} = B\hat{Σ}_F B' + \hat{Σ_u},

where \hat{Σ}_F is the sample covariance matrix of the common factors and \hat{Σ}_u is the covariaance matrix of residuals, assumed to have zero correlation.

Value

a list with the following entries

• a pxp estimated covariance matrix.

• an estimation specific tuning parameter, here NA.

Examples

data(sp200)
sp_rets <- sp200[,-1]
sigma_efm <- sigma_estim_efm(sp_rets)[[1]]

antshi/CovEstim documentation built on Nov. 13, 2020, 2:25 p.m.