White Noise Tests and APT Economic Factor Syntheses Using Temporal Factor Analysis
نویسندگان
چکیده
The well-known Arbitrage Pricing Theory (APT) in finance relates security returns to variations of several economic factors. Previous success using Temporal Factor Analysis (TFA) to extract statistically uncorrelated factors has shredded light on the possibility of further identification of hidden driving economic factors. In this paper, we will first perform white noise test on the residuals of the TFA model for model adequacy. Next, we will show how correlated economic factors can be synthesized from uncorrelated temporal Gaussian factors in TFA.
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