Topic: Can we trust PCA on non-stationary data?
Speaker: Dr. Yang Yanrong
Event date: 12/24/2019
Event time: 10:00 am
Venue: Lecture Hall 1506, Building 9
Sponsor: School of Mathematics and Statistics, Institute of Science and Technology
This paper establishes asymptotic properties for spike dempirical eigen values for high-dimensional data with both cross-sectional dependence and a dependent sample structure. A new finding from the established theoretical results is that spiked empirical eigen values will reflect the dependent sample structure instead of the cross-sectional structure under some scenarios, which indicates that principal component analysis (PCA) may provide inaccurate inference for cross-sectional structures. An illustrated example is provided to show that some commonly used statistics based on spiked empirical eigen values misestimate the true number of common factors. As an application of high-dimensional time series, we propose a test statistic to distinguish the unit root from the factor structure and demonstrate its effective finite sample performance on simulated data. Our results are then applied to analyze OECD healthcare expenditure data and U.S. mortality data, both of which possess cross-sectional dependence as well as non-stationary temporal dependence. It is worth mentioning that we contribute to statistical just ification for the benchmark paper by Lee and Carter (1992, JASA) in mortality forecasting.