Does the SCAD penalty solve the issue of multicollinearity?

by Giuseppe Marzano   Last Updated November 14, 2017 18:19 PM

Is the SCAD penalty by Fan and Li (2001) able to solve the issue of multicollinearity and why? I read a paper published on the Journal of Financial Econometrics, “Asset pricing with a general multifactor structure” by Bai and Ando (2015) and they never mention the issue. Fan and Li paper: http://orfe.princeton.edu/~jqfan/papers/01/penlike.pdf Bai and Ando paper: https://pdfs.semanticscholar.org/30ed/05ece94aa3223f2382d5f6905bae95480f75.pdf



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