Time-Varying Matrix Factor Models

Bin Chen; Elynn Y. Chen; Stevenson Bolivar; Rong Chen

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arXiv · 2404.01546

Time-Varying Matrix Factor Models

Bin Chen·Elynn Y. Chen·Stevenson Bolivar·Rong Chen

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Abstract

Matrix-variate data of high dimensions are frequently observed in finance and economics, spanning extended time periods, such as the long-term data on international trade flows among numerous countries. To address potential structural shifts and explore the matrix structure's informational context, we propose a time-varying matrix factor model. This model accommodates changing factor loadings over time, revealing the underlying dynamic structure through nonparametric principal component analysis and facilitating dimension reduction. We establish the consistency and asymptotic normality of our estimators under general conditions that allow for weak correlations across time, rows, or columns of the noise. A novel approach is introduced to overcome rotational ambiguity in the estimators, enhancing the clarity and interpretability of the estimated loading matrices. Our simulation study highlights the merits of the proposed estimators and the effective of the smoothing operation. In an application to international trade flow, we investigate the trading hubs, centrality, patterns, and trends in the trading network.

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BibTeX RIS

Bin Chen, Elynn Y. Chen, Stevenson Bolivar, Rong Chen. 2024-04-02. Time-Varying Matrix Factor Models. https://arxiv.org/abs/2404.01546

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