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Determining the Number of Factors – A Synopsis of the Main Research Methods

13 Pages Posted: 18 Sep 2015

See all articles by Dirk Beerbaum

Dirk Beerbaum

Frankfurt School of Finance & Management; Aalto University - Department of Accounting and Finance; Aalto University - School of Business

Date Written: September 16, 2015

Abstract

A common issue with regard to a research project is to identify the adequate research method for determining the number of factors in the growing literature on multifactor models (Bai and Ng, 2002). This paper intends to provide a synopsis on the existing different methods and the associated issues.

Keywords: Principal Component Analysis, Factor Analysis, Latent Semantic Analysis, Cluster Analysis, Methods of rotation

JEL Classification: C1

Suggested Citation

Beerbaum Dr., Dirk, Determining the Number of Factors – A Synopsis of the Main Research Methods (September 16, 2015). Available at SSRN: https://ssrn.com/abstract=2661790 or http://dx.doi.org/10.2139/ssrn.2661790

Dirk Beerbaum Dr. (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Aalto University - Department of Accounting and Finance ( email )

P.O. Box 1210
Helsinki, 00100
Finland

Aalto University - School of Business ( email )

Finland

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