Number of statistical independent factors in arbitrage pricing theory from the perspective of non-Gaussian factor analysis

摘要

A recently developed factor analytic technique, non-Gaussian factor analysis (NFA) is found to be well-suited for the analysis of classical arbitrage pricing theory (APT). In particular, the model selection ability of NFA is of substantial benefit to the critical task of factor number determination in traditional APT analysis. We aim to demonstrate how a reasonable number of independent factors in APT could be determined by applying the NFA technique. Experimental comparisons with the other two conventional methods are illustrated to confirm the superiority of this new approach.