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DIFFTEST (one vs two factor model)... |
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Hi I have a one factor model that I want to compare with a two factor model. The set of indicators used are the same in both cases (12 indicators). My question is how to specify the models to use difftest. Do I just need to constrain the correlation between factors to 1 to have the one factor model or do I have to constrain some of the loadings also? Thank you very much |
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First make sure your models are nested - the two-factor model should have loadings on only one of the two factors. If it does, you can simply use Model test to see if the factor correlation is one. |
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