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A Performance Comparison of Large-n Factor Estimators

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  • Zhuo Chen
  • Gregory Connor
  • Robert A Korajczyk

Abstract

We evaluate the performance of various methods for estimating factor returns in an approximate factor model. Differences across estimators are most pronounced when there is cross-sectional heteroscedasticity or when cross-sectional sample sizes, n, have fewer than 4,000 assets. Estimators incorporating either cross-sectional or time-series heteroscedasticity outperform the other estimators when those types of heteroscedasticity are present. The differences are most pronounced when the cross-sectional sample is small.Received December 2, 2015; editorial decision May 16, 2017 by Editor Jeffrey Pontiff.

Suggested Citation

  • Zhuo Chen & Gregory Connor & Robert A Korajczyk, 2018. "A Performance Comparison of Large-n Factor Estimators," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 8(1), pages 153-182.
    • Handle: RePEc:oup:rasset:v:8:y:2018:i:1:p:153-182.
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