TY  - RPRT
        AU  - Bailey, Natalia
AU  - Kapetanios, George
AU  - Pesaran, M. Hashem
        TI  - Exponent of Cross-sectional Dependence: Estimation and Inference
        PY  - 2012/Jan/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 6318
        UR  - https://www.iza.org/index.php/publications/dp6318
        AB  - An important issue in the analysis of cross-sectional dependence which has received renewed interest in the past few years is the need for a better understanding of the extent and nature of such cross dependencies. In this paper we focus on measures of cross-sectional dependence and how such measures are related to the behaviour of the aggregates defined as cross-sectional averages. We endeavour to determine the rate at which the cross-sectional weighted average of a set of variables appropriately demeaned, tends to zero. One parameterisation sets this to be O(N^2α-2), for 1/2 < α ≤ 1. Given the fashion in which it arises, we refer to as the exponent of cross-sectional dependence. We derive an estimator of   from the estimated variance of the cross-sectional average of the variables under consideration. We propose bias corrected estimators, derive their asymptotic properties and consider a number of extensions. We include a detailed Monte Carlo study supporting the theoretical results. Finally, we undertake an empirical investigation of using the S&P 500 data-set, and a large number of macroeconomic variables across and within countries.
        KW  - cross correlations
KW  - cross-sectional dependence
KW  - cross-sectional averages
KW  - weak and strong factor models
KW  - Capital Asset Pricing Model
        ER  -