A Performance Comparison of Large-n Factor Estimators, Review of Asset Pricing Studies
We evaluate the performance of various methods for estimating factor returns in an approximate factor model. Differences across estimators are most pronounced when there is cross-sectional heteroskedasticity, or when cross-sectional sample sizes, n, are below 4,000 assets. Estimators incorporating either cross-sectional or time-series heteroskedasticity outperform the other estimators when those types of heteroskedasticity are present. The differences are most pronounced when the cross-sectional sample is small.
Zhuo Chen, Gregory Connor, Robert Korajczyk
Chen, Zhuo, Gregory Connor, and Robert Korajczyk. 2018. A Performance Comparison of Large-n Factor Estimators. Review of Asset Pricing Studies. 8(1): 153-182.LINK