Binary Response Forecasting under a Factor-Augmented Framework
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arXiv
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| Main Authors: | , , , |
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866912496629055488 |
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| author | Cheng, Tingting Cong, Jiachen Liu, Fei Yang, Xuanbin |
| author_facet | Cheng, Tingting Cong, Jiachen Liu, Fei Yang, Xuanbin |
| contents | In this paper, we propose a novel factor-augmented forecasting regression model with a binary response variable. We develop a maximum likelihood estimation method for the regression parameters and establish the asymptotic properties of the resulting estimators. Monte Carlo simulation results show that the proposed estimation method performs very well in finite samples. Finally, we demonstrate the usefulness of the proposed model through an application to U.S. recession forecasting. The proposed model consistently outperforms conventional Probit regression across both in-sample and out-of-sample exercises, by effectively utilizing high-dimensional information through latent factors. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2507_16462 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Binary Response Forecasting under a Factor-Augmented Framework Cheng, Tingting Cong, Jiachen Liu, Fei Yang, Xuanbin Econometrics In this paper, we propose a novel factor-augmented forecasting regression model with a binary response variable. We develop a maximum likelihood estimation method for the regression parameters and establish the asymptotic properties of the resulting estimators. Monte Carlo simulation results show that the proposed estimation method performs very well in finite samples. Finally, we demonstrate the usefulness of the proposed model through an application to U.S. recession forecasting. The proposed model consistently outperforms conventional Probit regression across both in-sample and out-of-sample exercises, by effectively utilizing high-dimensional information through latent factors. |
| title | Binary Response Forecasting under a Factor-Augmented Framework |
| topic | Econometrics |
| url | https://arxiv.org/abs/2507.16462 |