HEDIBERT FREITAS LOPES

HEDIBERT FREITAS LOPES

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When It Counts—Econometric Identification of the Basic Factor Model Based on GLT Structures
(2023) Frühwirth-Schnatter, Sylvia; Hosszejni, Darjus; HEDIBERT FREITAS LOPES
Despite the popularity of factor models with simple loading matrices, little attention has been given to formally address the identifiability of these models beyond standard rotation-based identification such as the positive lower triangular (PLT) constraint. To fill this gap, we review the advantages of variance identification in simple factor analysis and introduce the generalized lower triangular (GLT) structures. We show that the GLT assumption is an improvement over PLT without compromise: GLT is also unique but, unlike PLT, a non-restrictive assumption. Furthermore, we provide a simple counting rule for variance identification under GLT structures, and we demonstrate that within this model class, the unknown number of common factors can be recovered in an exploratory factor analysis. Our methodology is illustrated for simulated data in the context of post-processing posterior draws in sparse Bayesian factor analysis.
Stochastic Volatility Models with Skewness Selection
(2024) Martins, Igor; HEDIBERT FREITAS LOPES
This paper expands traditional stochastic volatility models by allowing for time-varying skewness without imposing it. While dynamic asymmetry may capture the likely direction of future asset returns, it comes at the risk of leading to overparameterization. Our proposed approach mitigates this concern by leveraging sparsity-inducing priors to automatically select the skewness parameter as dynamic, static or zero in a data-driven framework. We consider two empirical applications. First, in a bond yield application, dynamic skewness captures interest rate cycles of monetary easing and tightening and is partially explained by central banks’ mandates. In a currency modeling framework, our model indicates no skewness in the carry factor after accounting for stochastic volatility. This supports the idea of carry crashes resulting from volatility surges instead of dynamic skewness.
Probabilistic Nearest Neighbors Classification
(2024) Fava, Bruno; PAULO CILAS MARQUES FILHO; HEDIBERT FREITAS LOPES
Analysis of the currently established Bayesian nearest neighbors classification model points to a connection between the computation of its normalizing constant and issues of NP-completeness. An alternative predictive model constructed by aggregating the predictive distributions of simpler nonlocal models is proposed, and analytic expressions for the normalizing constants of these nonlocal models are derived, ensuring polynomial time computation without approximations. Experiments with synthetic and real datasets showcase the predictive performance of the proposed predictive model.
Decoupling Shrinkage and Selection in Gaussian Linear Factor Analysis
(2024) Bolfarine, Henrique; Carvalho, Carlos M.; HEDIBERT FREITAS LOPES; Murray, Jared S.
Factor analysis is a popular method for modeling dependence in multivariate data. However, determining the number of factors and obtaining a sparse orientation of the loadings are still major challenges. In this paper, we propose a decision-theoretic approach that brings to light the relationship between model fit, factor dimension, and sparse loadings. This relation is done through a summary of the information contained in the multivariate posterior. A two-step strategy is used in our method. First, given the posterior samples from the Bayesian factor analysis model, a series of point estimates with a decreasing number of factors and different levels of sparsity are recovered by minimizing an expected penalized loss function. Second, the degradation in model fit between the posterior of the full model and the recovered estimates is displayed in a summary. In this step, a criterion is proposed for selecting the factor model with the best trade-off between fit, sparseness, and factor dimension. The findings are illustrated through a simulation study and an application to personality data. We used different prior choices to show the flexibility of the proposed method.
Sparse Bayesian Factor Analysis When the Number of Factors Is Unknown
(0204) Frühwirth-Schnatter, Sylvia; Hosszejni, Darjus; HEDIBERT FREITAS LOPES
There has been increased research interest in the subfield of sparse Bayesian factor analysis with shrinkage priors, which achieve additional sparsity beyond the natural parsimonity of factor models. In this spirit, we estimate the number of common factors in the widely applied sparse latent factor model with spike-and-slab priors on the factor loadings matrix. Our framework leads to a natural, efficient and simultaneous coupling of model estimation and selection on one hand and model identification and rank estimation (number of factors) on the other hand. More precisely, by embedding the unordered generalised lower trian gular loadings representation into overfitting sparse factor modelling, we obtain posterior summaries regarding factor loadings, common factors as well as the factor dimension via postprocessing draws from our efficient and customized Markov chain Monte Carlo scheme.
Modeling sea-level processes on the U.S. Atlantic Coast
(2020) Berrett, Candace; Christensen, William F.; Sain, Stephan R.; Sandholtz, Nathan; Coats, David W.; Tebaldi, Claudia; HEDIBERT FREITAS LOPES
One of the major concerns engendered by a warming climate are changing sea levels and their lasting effects on coastal populations, infrastructures, and natural habitats. Sea levels are now monitored by satellites, but long-term records are only available at discrete locations along the coasts. Sea levels and sea-level processes must be better understood at the local level to best inform real-world adaptation decisions. We propose a statistical model that facilitates the characterization of known sea-level processes, which jointly govern the observed sea level along the United States Atlantic Coast. Our model not only incorporates long-term sea level rise and seasonal cycles but also accurately accounts for residual spatiotemporal processes. By combining a spatially varying coefficient modeling approach with spatiotemporal factor analysis methods in a Bayesian framework, the method represents the contribution of each of these processes and accounts for corresponding dependencies and uncertainties in a coherent way. Additionally, the model provides a consistent way to estimate these processes and sea level values at unmonitored locations along the coast. We show the outcome of the proposed model using thirty years of sea level data from 38 stations along the Atlantic (east) Coast of the United States. Among other results, our method estimates the rate of sea level rise to range from roughly 1 mm/year in the northern and southern regions of the Atlantic coast to 5.4 mm/year in the middle region.
Deep learning models for inflation forecasting
(2023) Theoharidis, Alexandre Fernandes; DIOGO ABRY GUILLEN; HEDIBERT FREITAS LOPES; Hosszejni, Darjus
We propose a hybrid deep learning model that merges Variational Autoencoders and Convolutional LSTM Networks (VAE-ConvLSTM) to forecast inflation. Using a public macroeconomic database that comprises 134 monthly US time series from January 1978 to December 2019, the proposed model is compared against several popular econometric and machine learning benchmarks, including Ridge regression, LASSO regression, Random Forests, Bayesian methods, VECM, and multilayer perceptron. We find that VAE-ConvLSTM outperforms the competing models in terms of consistency and out-of-sample performance. The robustness of such conclusion is ensured via cross-validation and Monte-Carlo simulations using different training, validation, and test samples. Our results suggest that macroeconomic forecasting could take advantage of deep learning models when tackling nonlinearities and nonstationarity, potentially delivering superior performance in comparison to traditional econometric approaches based on linear, stationary models.