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Bayesian Reduced Rank Regression in Econometrics

Working Paper 540 | Published January 1, 1995

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Bayesian Reduced Rank Regression in Econometrics

Abstract

The reduced rank regression model arises repeatedly in theoretical and applied econometrics. To date the only general treatment of this model have been frequentist. This paper develops general methods for Bayesian inference with noninformative reference priors in this model, based on a Markov chain sampling algorithm, and procedures for obtaining predictive odds ratios for regression models with different ranks. These methods are used to obtain evidence on the number of factors in a capital asset pricing model.


Published in: _Journal of Econometrics_ (Vol. 75, No. 1, November 1996, pp. 121-146), https://doi.org/10.1016/0304-4076(95)01773-9.