Sparse High Dimensional Models in Economics

Annu Rev Econom. 2011 Sep;3:291-317. doi: 10.1146/annurev-economics-061109-080451.


This paper reviews the literature on sparse high dimensional models and discusses some applications in economics and finance. Recent developments of theory, methods, and implementations in penalized least squares and penalized likelihood methods are highlighted. These variable selection methods are proved to be effective in high dimensional sparse modeling. The limits of dimensionality that regularization methods can handle, the role of penalty functions, and their statistical properties are detailed. Some recent advances in ultra-high dimensional sparse modeling are also briefly discussed.