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Supplementary Material for ``High Dimensional Latent Panel Quantile Regression with an Application to Asset Pricing''
\begin{frontmatter}
\title{High Dimensional Latent Panel Quantile Regression \\with an Application to Asset Pricing }
\runtitle{}
\begin{aug}
\author[A]{\fnms{Alexandre } \snm{Belloni}\ead[label=e1]{[email removed]}},
\author[B]{\fnms{Mingli } \snm{Chen}\ead[label=e2]{[email removed]}}
\author[C]{\fnms{Oscar Hernan} \snm{Madrid Padilla}\ead[label=e3]{[email removed] }}\\
\and
\author[D]{\fnms{Zixuan (Kevin) } \snm{Wang}\ead[label=e4]{[email removed] }}
\address[A]{ Fuqua Business School, Duke University
}
\address[B]{Department of Economics, University of Warwick
}
\address[C]{Department of Statistics, University of California, Los Angeles
}
\address[D]{Harvard University
}
\end{aug}
\begin{abstract}
We propose a generalization of the linear panel quantile regression model to accommodate both \textit{sparse} and \textit{dense} parts: sparse means that while the number of covariates available is large, potentially only a much smaller number of them have a nonzero impact on each conditional quantile of the response variable; while the dense part is represent by a low-rank matrix that can be approximated by latent factors and their loadings. Such a structure poses problems for traditional sparse estimators, such as the $\ell_1$-penalised Quantile Regression, and for traditional latent factor estimators such as PCA. We propose a new estimation procedure, based on the ADMM algorithm, that consists of combining the quantile loss function with $\ell_1$ \textit{and} nuclear norm regularization.
We show, under general conditions, that our estimator can consistently estimate both the nonzero coefficients of the covariates and the latent low-rank matrix. This is done in a challenging setting that allows for temporal dependence, heavy-tail distributions, and the presence of latent factors.
Our proposed model has a "Characteristics + Latent Factors" Quantile Asset Pricing Model interpretation: we apply our model and estimator with a large-dimensional panel of financial data and find that (i) characteristics have sparser predictive power once latent factors were controlled (ii) the factors and coefficients at upper and lower quantiles are different from the median.
\end{abstract}
\begin{keyword}[class=MSC2010]
\kwd[Primary ]{ 62A99 }
\kwd{00X00}
\kwd[; secondary ]{00X00}
\end{keyword}
\begin{keyword}
\kwd{High-dimensional quantile regression}
\kwd{factor model}
\kwd{nuclear norm regularization}
\kwd{ panel data}
\kwd{asset pricing}
\end{keyword}
\end{frontmatter}
\section{Introduction}
A central question in asset pricing is to explain why certain assets pay higher returns than others. The Arbitrage Pricing Theory (\cite{ross1976arbitrage}) and the Fama-French three factors model (\cite{fama1993common}) explains the asset return variations by a linear combination of common risk factors. Assets with similar exposure to a common factor shall rise and fall together (\cite{cochrane2009asset}). However, empirical evidence appears to indicate that the firm characteristics, rather than common factors, can also explain the variations in stock returns (\cite{daniel1997evidence}), which suggests a characteristic-based model.
We generalize both modeling approaches and propose a ``Characteristics + Latent Factors'' quantile asset pricing framework. By incorporating the ``Characteristics", we improve the economic interpretability and explanatory power of the model. On the other hand, the finance literature has documented a zoo of new characteristics, and the proliferation of characteristics in this ``variable zoo'' leads to a concern about which characteristics really provide independent information about returns (\cite{cochrane2011presidential}). Our model addresses this issue by imposing a \textit{sparse} structure, meaning although a large set of characteristics is available, only a much smaller subset of them might have predictive power. We also incorporate ``Latent Factors'' to capture the common variations in asset returns. One additional benefit of having this part is that it might help alleviate the ``omitted variable bias'' problem (\cite{giglio2018asset}). As in the literature, typically, these latent factors are estimated via principal component analysis, which means all possible latent explanatory variables might be important for prediction although their individual contribution might be small, we term this as the \textit{dense} part. \footnote{More about sparse modeling and dense modeling can be found in \cite{giannone2017economic}. See also \cite{chernozhukov2017lava}.} Hence, our framework allows for ``Sparse + Dense" modeling with large scale panel data that consist of a large number of asset returns that are allowed to be weakly correlated across time. In addition, we focus on understanding the quantiles (hence the entire distribution) of returns rather than just the mean, in line with the recent interest in quantile factor models (e.g. \cite{ando2020quantile}, \cite{chen2018quantile}, \cite{ma2019estimation}, \cite{feng2019nuclear}, and \cite{sagner2019three}). Our quantile asset pricing framework also inherits micro-foundation from the seminal quantile preference framework(\citep{manski1988ordinal,rostek2010quantile,giovannetti2013asset}) and, in particular, the dynamic quantile preference framework of \cite{de2019dynamic}.
Specifically, with $Y_{i,t}$ as the excess return of asset $i$ in period $t$, $X_{i,t}$ as a $p$-dimensional vector of observable characteristics such as return volatility and trading volume, we study the following high dimensional latent panel quantile regression model:
\begin{equation}
\label{eqn:first_model_0}
F_{ Y_{i,t}| X_{i,t}; \theta(\tau), \lambda_{i}(\tau), g_{t}(\tau) }^{-1}(\tau) \,=\, X_{i,t}^{\prime} \theta(\tau) + \lambda_i(\tau)^{\prime} g_t(\tau), \,\, i \,=\, 1\ldots, n, \,\,\, t \,=\, 1,\ldots,T,
\end{equation}
where $\theta(\tau) \in \mathbb{R}^p$ is the vector of coefficients, $g_t(\tau)$ is an $r_{\tau}$-dimensional vector of unobservable factor returns, $\lambda_i(\tau)$ represents the factor loadings which captures the sensitivity of asset $i$ on the $r_{\tau}$ factors, $\tau \in [0,1]$ is the quantile index. We allow for the possibility of quantile dependence of sensitivity to risk factors as such evidence has been reported in the literature (e.g., \citep{ando2020quantile}). For notation simplicity, we often denote $\Pi_{i,t} (\tau) = \lambda_i(\tau)^{\prime} g_t(\tau)$, then $\Pi(\tau)$ is a low-rank matrix with unknown rank $r_\tau$. Thus, with $ F_{ Y_{i,t}| X_{i,t}; \theta(\tau), \lambda_i(\tau), g_{t}(\tau)}$ is the cumulative distribution function of $Y_{i,t}$ conditioning on $X_{i,t}$, $\theta(\tau)$ and $\lambda_i(\tau), g_t(\tau)$, we model the quantiles of returns (instead of expected returns) as a linear combination of the characteristics and latent factors. Our framework allows for the possibility of lagged dependent data. Here, we allow for the number of characteristics $p$, and the time horizon $T$, to grow to infinity as $n$ grows. Throughout, we focus on the case where $p$ is large, possibly much larger than $n T$, but for the true model $\theta(\tau)$ is sparse and has only $ s_{\tau} \ll p$ non-zero components.
Our framework is flexible enough that allows us to jointly answer the following three questions in asset pricing: (i) Which characteristics are important to explain the time series and cross-section of stock returns, after controlling for the factors? (ii) How much would the latent factors explain stock returns after controlling for firm characteristics? (iii) Does the relationship of stock returns and firm characteristics change across quantiles?
The first question is related to the recent literature on variable selection in asset pricing using machine learning (\cite{ kozak2019shrinking, feng2019taming, han2018firm}). The second question is related to an classical literature starting from 1980s on statistical factor models of stock returns (\cite{chamberlain1983arbitrage, connor1988risk} and recently \cite{lettau2018estimating}). The third question extends the literature in late 1990s on stock return and firm characteristics (\cite{daniel1997evidence, daniel1998characteristics}) and further asks whether the relationship is heterogenous across quantiles.
There are several key features of considering prediction problem at the panel quantile model in this setting. First, stock returns are known to be asymmetric and exhibit heavy tail, thus modeling different quantiles of return provides extra information in addition to models of first and second moments. Second, quantile regression provides a richer characterization of the data, allowing heterogeneous relationship between stock returns and firm characteristics across the entire return distribution. Third, the latent factors might also be different at different quantiles of stock returns. Finally, quantile regression is more robust to the presence of outliers relative to other widely used mean-based approaches. Using a robust method is crucial when estimating low-rank structures (see e.g. \cite{she2017robust}). As our framework is based on modeling the quantiles of the response variable, we do not put assumptions directly on the moments of the dependent variable.
Our main goal is to consistently estimate both the sparse part and the low-rank matrix. Recovery of a low-rank matrix, when there are additional high dimensional covariates, in a nonlinear model can be very challenging. The rank constraint will result in the optimization problem NP-hard. In addition, estimation in high dimensional regression is known to be a challenging task, which in our frameworks becomes even more difficult due to the additional latent structure. We address the former challenge via nuclear norm regularization which is similar to \cite{candes2009exact} in the matrix completion setting. Without covariates, the estimation can be done via solving a convex problem, and similarly there are strong statistical guarantees of recovery of the underlying low-rank structure. We address the latter challenge by imposing $\ell_1$ regularization on the vector of coefficients of the control variables, similarly to \cite{belloni2011l1} which mainly focused on the cross-sectional data setting. Note that with regards to sparsity, we must be cautious, specially when considering predictive models (\cite{she2017robust}). Furthermore, we explore the performance of our procedure under settings where the vector of coefficients can be dense (due to the low-rank matrix).
We view our work as complementary to the low dimensional quantile regression with interactive fixed effects framework as of the very recent work of \cite{feng2019nuclear}, and the mean estimation setting in \cite{moon2018nuclear}. However, unlike \cite{moon2018nuclear} and \cite{feng2019nuclear}, we allow the number of covariates $p$ to be large, perhaps $p \gg nT$. This comes with different significant challenges. On the computational side, it requires us to develop novel estimation algorithms, which turns out can also be used for the contexts in \cite{moon2018nuclear} and \cite{feng2019nuclear}. On the theoretical side, allowing $p \gg nT$ requires a systematically different analysis as compared to \cite{feng2019nuclear}, as it is known that ordinary quantile regression is inconsistent in high dimensional settings ($p \gg nT$), see \cite{belloni2011l1}.
\paragraph*{Related Literature}
Our work contributes to the recent growing literature on panel quantile model. \cite{abrevaya2008effects}, \cite{graham2018quantile}, \cite{arellano2017quantile}, considered the fixed $T$ asymptotic case. \cite{kato2012asymptotics} formally derived the asymptotic properties of the fixed effect quantile regression estimator under large $T$ asymptotics, and \cite{galvao2016smoothed} further proposed fixed effects smoothed quantile regression estimator. \cite{galvao2011quantile} works on dynamic panel.
\cite{koenker2004quantile} proposed a penalized estimation method where the individual effects are treated as pure location shift parameters common to all quantiles, for other related literature see \cite{ lamarche2010robust}, \cite{galvao2010penalized}. We refer to Chapter 19 of \cite{koenker2017handbook} for a review. Furthermore, our framework can be viewed as a generalization of the model in \cite{ando2020quantile} which considered panel quantile model with independent errors and low dimensional covariates.
Our work also contributes to the literature on nuclear norm penalisation, which has been widely studied in the machine learning and statistical learning literature, \cite{fazel2002matrix}, \cite{recht2010guaranteed, koltchinskii2011nuclear, rohde2011estimation}, \cite{negahban2011estimation}, \cite{brahma2017reinforced}. Recently, in the econometrics literature \cite{athey2018matrix} proposes a framework of matrix completion for estimating causal effects, \cite{bai2017principal} for estimating approximate factor model, \cite{chernozhukov2018inference} considered the heterogeneous coefficients version of the linear panel data interactive fixed model where the main coefficients has a latent low-rank structure, \cite{bai2019robust} for robust principal component analysis, and \cite{bai2019matrix} for imputing counterfactual outcome.
Finally, our results contribute to a growing literature on high dimensional quantile regression. \cite{wang2012quantile} considered quantile regression with concave penalties for ultra-high dimensional data; \cite{zheng2015globally}
proposed an adaptively weighted $\ell_1$-penalty for globally concerned quantile regression. Screening procedures based on moment conditions motivated by the quantile models have been proposed and analyzed in \cite{he2013quantile} and \cite{ wu2015conditional} in the high-dimensional regression setting. We refer to \cite{koenker2017handbook} for a review.
To sum-up, our paper makes the following contributions. First, we propose a new class of models that consist of both \textit{high dimensional regressors} and \textit{latent factor} structures. We provide a scalable estimation procedure, and show that the resulting estimator is consistent under suitable regularity conditions.
Second, the high dimensional and non-smooth objective function require innovative strategies to derive all the above-mentioned results. In particular, our paper allows for serial dependence and this flexibility is important for the panel data case. It is well known that dealing with data dependence is a non-trivial problem, and there are additional challenges for high dimensional models even for those without incorporating the latent factors: the extension of lasso-based methods with
relaxing the i.i.d. assumption and other restrictive assumptions (for instance, Gaussianity), is just beginning to occur, e.g. for time series data some recent development along this line can be found in \cite{wong2020lasso}. Those lead to the novel use in our proofs of some techniques from the high dimensional statistics and econometrics literature, such as the localization argument from \cite{belloni2011l1}, and the new loss function introduced in \cite{padilla2020adaptive}; from spectral theory, namely, properties of nuclear norm studied in \cite{elsener2018robust}, and concentrations results by \cite{chatterjee2015matrix}; and from empirical process theory \cite{yu1994rates,wellner2013weak}. We also
generalize the sampling and smoothness assumption of \cite{belloni2011l1} by considering panel data with weak correlation across time. In particular, we refer readers to \cite{yu1994rates} for thorough discussions on $\beta$-mixing.
On the theoretical side, we also present multiple results that entirely differ from those in \cite{belloni2011l1}. In addition to allowing time dependence and a latent factor structure, we can consistently estimate the conditional quantiles without requiring a minimum eigenvalue condition on the behavior of the design matrix, which is typically required in the literature (e.g. \cite{belloni2011l1}). Relative to approaches that incorporate latent factor structure but relies on the squared loss, the proposed estimators inherit from quantile regression certain robustness properties to the presence of outliers and heavy-tailed distributions. Finally, we apply our proposed model and estimator to a large-dimensional panel of financial data in the US stock market and find that different return quantiles have different selected firm characteristics and that the number of latent factors can be also be different.
\paragraph*{Outline} The rest of the paper is organized as follows. Section \ref{sec:Overview} introduces the high dimensional latent quantile regression model, and provides an overview of the main theoretical results. Section \ref{sec:sol_algorithms} presents the estimator and our proposed ADMM algorithm. Section \ref{sec:theory} discusses the statistical properties of the proposed estimator. Section \ref{sec:Simulation} provides simulation results. Section \ref{sec:Empirical} consists of the empirical results of our model applied to a real data set. The proofs of the main results are in the Supplementary Material.
\paragraph*{Notation} For $m \in \mathbb{N}$, we write $[m] \,=\, \{1,\ldots,m\}$.
For a vector $ v \in \mathbb{R}^p$ we define its $\ell_0$ norm as $\| v\|_0 = \sum_{j =1}^{p} 1\{ v_j \neq 0 \} $, where $1\{ \cdot \}$ takes value $1$ if the statement inside $\{\}$ is true, and zero otherwise; its $\ell_1$ norm as $\Vert v \Vert_1 = \sum^p_{j=1}\vert v_j\vert$. We denote $\Vert v \Vert_{1,n,T} = \sum_j^{p}\hat{\sigma}_j\vert v_j\vert$ the $\ell_1$-norm weighted by $\hat{\sigma}_j$'s (defined in eq(\ref{eq:sigma})). The Euclidean norm is denoted by $\|\cdot \|$, thus $\|v\| = \sqrt{ \sum_{j=1}^p v_j^2 }$. If $A \in \mathbb{R}^{n \times T}$ is a matrix, its Frobenius norm is denoted by $\|A\|_F \,=\,\sqrt{ \sum_{ i= 1}^n \sum_{t=1}^T A_{i,t}^2 }$, its spectral norm by $\| A\|_2 \,=\, \sup_{x \,:\, \|x\| = 1 }\sqrt{ x^{\prime} A^{\prime} A x} $, its infinity norm by $\|A\|_{\infty} \,= \, \max\{ \vert A_{i,j }\vert \,:\, i \in [n],\,\, j \in [T] \} $ , its rank by $\text{rank}(A)$, and its nuclear norm by $\|A\|_* = \text{trace}(\sqrt{A^{\prime} A})$ where $A^{\prime}$ is the transpose of $A$. The $j$th column $A$ is denoted by $A_{\cdot,j}$. Furthermore, the multiplication of a tensor $X \in \mathbb{R}^{I_1 \times \ldots \times I_m }$ with a vector $\theta \in \mathbb{R}^{I_m}$ is denoted by $Z := X \theta \in \mathbb{R}^{ I_1 \times \ldots \times I_{m-1} }$, and, explicitly, $Z_{i_1,\ldots i_{m-1} } = \sum_{j = 1}^{I_m} X_{i_1,\ldots, i_{m-1},j } \, \theta_{j} $. We also use the notation $a \vee b= \max\{a,b\}$, $a \land b = \min\{a, b\}$, $(a)_{-} = \max\{-a,0\}$. For a sequence of random variables $\{z_j\}_{j=1}^{\infty}$ we denote by $\sigma(z_1,z_2,\ldots)$ the sigma algebra generated by $\{z_j\}_{j=1}^{\infty}$. Finally, for sequences $\{a_n\}_{n=1}^{\infty}$ and $\{b_n\}_{n=1}^{\infty}$ we write $a_n \asymp b_n$
if there exists positive constants $c_1$ and $c_2$ such that $c_1 b_n \leq a_n \leq c_2 b_n$ for sufficiently large $n$.
\section{The Estimator and Overview of Rate Results}\label{sec:Overview}
\subsection{Basic Setting}
The setting of interest corresponds to a high dimension latent panel quantile regression model, where $Y \in \mathbb{R}^{n\times T} $, and $X \in \mathbb{R}^{n \times T \times p}$ satisfying
\begin{equation}
\label{eqn:first_model}
F_{ Y_{i,t}| X_{i,t}; \theta(\tau), \Pi_{i,t}(\tau) }^{-1}(\tau) \,=\, X_{i,t}^{\prime} \theta(\tau) + \Pi_{i,t}(\tau), \,\,\,\,\, i \,=\, 1\ldots, n, \,\,\, t \,=\, 1,\ldots,T,
\end{equation}
where $i$ denotes subjects, $t$ denotes time, $\theta(\tau) \in \mathbb{R}^p$ is the vector of coefficients, $\Pi(\tau) \in \mathbb{R}^{n \times T}$ is a low-rank matrix with unknown rank $r_\tau \ll \min \{n, T\}$, $\tau \in [0,1]$ is the quantile index, and $ F_{ Y_{i,t}| X_{i,t}; \theta(\tau), \Pi_{i,t}(\tau) }$ is the cumulative distribution function of $Y_{i,t}$ conditioning on $X_{i,t}$, $\theta(\tau)$ and $\Pi_{i,t}(\tau)$. Thus, we model the quantile function at level $\tau$ as a linear combination of the predictors plus a low-rank matrix. Here, we allow for the number of covariates $p$, and the time horizon $T$, to grow to infinity as $n$ grows. Throughout the paper the quantile index $\tau \in (0,1)$ is fixed. We mainly focus on the case where $p$ is large, possibly much larger than $nT $, but for the true model $\theta(\tau)$ is sparse and has only $ s_{\tau} \ll p$ non-zero components. Mathematically, $s_\tau := \Vert \theta(\tau) \Vert_0$.
When $\Pi_{i,t}(\tau) \,=\, \lambda_i(\tau)^{\prime} g_t(\tau)$, with $\lambda_i(\tau), \, g_t(\tau) \in \mathbb{R}^{r_{\tau}}$, this immediately leads to the following setting
\begin{equation}
\label{eqn:low_rank}
F_{ Y_{i,t}| X_{i,t}; \theta(\tau), \Pi_{i,t}(\tau) }^{-1}(\tau) \,=\, X_{i,t}^{\prime}\theta(\tau) + \lambda_i(\tau)^{\prime} g_t(\tau).
\end{equation}
where we model the quantile function at level $\tau$ as a linear combination of the covariates (as predictors) plus a latent factor structure. This is directly related to the panel data models with interactive fixed effects literature in econometrics, e.g. linear panel data model (\cite{bai2009panel}), nonlinear panel data models (\cite{chen2014estimation, chen2014nonlinear}).
Note, for eq (\ref{eqn:low_rank}), additional identification restrictions are needed for estimating $\lambda_i(\tau)$ and $g_t(\tau)$ (see \cite{bai2013principal}). In addition, in nonlinear panel data models, this creates additional difficult in estimation, as the latent factors and their loadings part induce a nonconvex quantile regression problem. However, we deal with this in the following subsection via using a nuclear norm constraint. \footnote{ Different identification conditions might result in different estimation procedures for $\lambda$ and $f$, see \cite{bai2012statistical} and \cite{chen2014estimation}.}
\subsection{Estimator}\label{sec:problem_formulation}
In this subsection, we describe the high dimensional latent quantile estimator. With the sparsity and low-rank constraints in mind, a natural formulation for the estimation of $(\theta(\tau),\Pi(\tau))$ is
\begin{equation}
\label{eqn:formulation}
\begin{array}{ll}
\underset{ \tilde{\theta}\in \mathbb{R}^{p } ,\,\ \tilde{\Pi}\in \mathbb{R}^{n \times T} }{\text{minimize} } & \displaystyle \frac{1}{nT } \sum_{t=1}^{T} \sum_{i=1}^n \rho_{\tau}(Y_{i,t} - X_{i,t}^{\prime}\tilde{\theta} - \tilde{\Pi}_{i,t} ) \\
\text{subject to} & \mathrm{rank}(\tilde{\Pi})\leq r_{\tau},\\
& \Vert\tilde{\theta}\Vert_{0}= s_{\tau},
\end{array}
\end{equation}
where $\rho_{\tau}(t) \,=\, (\tau - 1\{ t\leq 0 \})t $ is the quantile loss function as in \cite{Koenker2005}, $s_{\tau}$ is a parameter that directly controls the sparsity of $\tilde{\theta}$, and $r_{\tau}$ controls the rank of the estimated latent matrix.
While the formulation in (\ref{eqn:formulation}) seems appealing, as it enforces variable selection and low-rank matrix estimation simultaneously, (\ref{eqn:formulation}) is a non-convex problem due to the constraints posed by the $\|\cdot\|_0$ and $\mathrm{rank}(\cdot)$ functions. We propose a convex relaxation of (\ref{eqn:formulation}). Inspired by the seminal works of \cite{tibshirani1996regression} and \cite{candes2009exact}, we formulate the problem as the following
\begin{equation}
\label{eqn:formulation2}
\underset{ \tilde{\theta}\in \mathbb{R}^{p } ,\,\ \tilde{\Pi}\in \mathbb{R}^{n \times T} }{\min} \left\{\frac{1}{nT } \sum_{t=1}^{T} \sum_{i=1}^n \rho_{\tau}(Y_{i,t} - X_{i,t}^{\prime}\tilde{\theta} - \tilde{\Pi}_{i,t} ) + \nu_{1}\sum_{j=1}^{p} w_j \vert \tilde{\theta}_j \vert + \nu_2 \|\tilde{\Pi}\|_*\right\}
\end{equation}
where $ \nu_{1} >0$ and $\nu_2 >0$ are tuning parameters, and $w_1,\ldots,w_p$ are user specified weights (more on this in Section \ref{sec:theory} ). Notice that $\|\cdot\|_*$ is the nuclear norm defined on Page 4. The nuclear norm regularization works on the singular value of a matrix, the intuition is that via penalization with the nuclear norm, the resulting problem will be convex. Just as $\ell_1$-minimization is the tightest convex relaxation of the combinatorial $\ell_0$-minimization problem, nuclear-norm minimization is the tightest convex relaxation of the NP-hard rank minimization problem, see \cite{candes2010matrix}.
In principle, one can use any convex solver software to solve (\ref{eqn:formulation2}), since this is a convex optimization problem. However, for large scale problems a more careful implementation might be needed. Section \ref{sec:sol_algorithms} presents a scheme for solving (\ref{eqn:formulation2}) that is based on the ADMM algorithm (\citep{boyd2011distributed}).
\subsection{Summary of results}
We now summarize our main results. For the model defined in (\ref{eqn:first_model}):
\begin{itemize}
\item Under (\ref{eqn:first_model}), $s_{\tau} \ll \min\{n,T\}$, an assumption that implicitly requires $r_{\tau} \ll \min\{n,T\}$, and other regularity conditions defined in Section \ref{sec:theory}, we show that our estimator $(\hat{\theta}(\tau), \hat{\Pi}(\tau))$ defined in Section \ref{sec:sol_algorithms} is consistent for $(\theta(\tau),\Pi(\tau))$. Specifically, for the independent data case (across $i$ and $t$), under suitable regularity conditions that can be found in Section \ref{sec:theory}, we have
\begin{equation}
\label{eqn:beta_rate}
\displaystyle \|\hat{\theta}(\tau) -\theta(\tau)\| \,=\, O_{\mathbb{P}}\left( \max\{\sqrt{\log p},\sqrt{\log n} \} ( \sqrt{s_{\tau}} + \sqrt{r_{\tau}} )\left( \frac{1}{ \sqrt{n} } + \frac{1}{\sqrt{T}} \right) \right).
\end{equation}
and
\begin{equation}
\label{eqn:pi_rate}
\displaystyle \frac{1}{nT} \| \hat{\Pi}(\tau) -\Pi(\tau) \|_F^2 \,=\, O_{\mathbb{P}}\left( \max\{\log p,\log n \}(s_{\tau} + r_{\tau} ) \left( \frac{1}{n} + \frac{1}{T} \right) \right),
\end{equation}
Importantly, the rates in (\ref{eqn:beta_rate}) and (\ref{eqn:pi_rate}), up to logarithmic factor, match those in previous works. However, our setting allows for modeling at different quantile levels. We also complement our results by allowing for the possibility of lagged dependent data. Specifically, under a $\beta$-mixing assumption, Theorem \ref{thm:1} provides a statistical guarantee for estimating $(\theta(\tau), \Pi(\tau))$. This result can be thought as a generalization of the statements in (\ref{eqn:beta_rate}) and (\ref{eqn:pi_rate}).
Let $ q_{i,t} \,=\, X_{i,t}^{\prime}\theta_{i,t}(\tau) + \Pi_{i,t}(\tau)$ for $t \in \{1,\ldots,T\}$ and $i \in \{1,\ldots,n\}$ be the conditional quantiles. We
show that, under weaker conditions than the ones needed for Theorem 4.2, our estimates $\{\hat{q}_{i,t}\}$ satisfy
\[
\begin{array}{lll}
\displaystyle \frac{1}{nT} \sum_{i=1}^{n} \sum_{t=1}^{T} \min\{ \vert q_{i,t} -\hat{q}_{i,t} \vert,(q_{i,t} -\hat{q}_{i,t} )^2 \} &=& \displaystyle O_{\mathbb{P}}\bigg(\left( \frac{1}{\sqrt{n}} + \frac{1}{\sqrt{T}} \right)\bigg( \frac{\| \Pi(\tau)\|_* }{nT} \,+\,\\
& &\,\,\,\,\,\,\,\,\,\,\,\sqrt{ \log(\max\{ n,p \}) }\|\beta(\tau)\|_1 \bigg) \bigg),
\end{array}
\]
for the independent data case (across $i$ and $t$). This is a particular instance of Theorem \ref{thm_c} which allows the possibility of time dependence.
\item An important aspect of our analysis is that we contrast the performance of our estimator in settings where the possibility of a dense $\theta(\tau)$ provided that the features are highly correlated. We show that there exist choices of the tuning parameters for our estimator that lead to consistent estimation.
\item For estimation, we provide an efficient algorithm (details can be found in Section \ref{sec:sol_algorithms}), which is based on the ADMM algorithm (\cite{boyd2011distributed}).
\item Section \ref{sec:Empirical} provides thorough examples on financial data that illustrate the flexibility and interpretability of our approach.
\end{itemize}
Although our theoretical analysis builds on the work by \cite{belloni2011l1}, there are multiple challenges that we must face in order to prove the consistency of our estimator. First, the construction of the restricted set now involves the nuclear norm penalty. This requires us to define a new restricted set that captures the contributions of the low-rank matrix. Second, when bounding the empirical processes that naturally arise in our proof, we have to simultaneously deal with
the sparse and dense components. Furthermore, throughout our proofs, we have to carefully handle the weak dependence assumption that can be found in Section \ref{sec:theory}.
\section{High Dimensional Latent Panel Quantile Regression} \label{sec:sol_algorithms}
In this subsection, we describe the main steps of our proposed ADMM algorithm, details can be found in Section \ref{sec:admm}. We start by introducing slack variables to the original problem (\ref{eqn:formulation2}). As a result, a problem equivalent to (\ref{eqn:formulation2}) is
\begin{equation}
\label{eqn:formulation3}
\begin{array}{lll}
\underset{ \stackrel{\tilde{\theta} , \tilde{\Pi},V }{Z_{\theta},Z_{\Pi },W } }{\min} & \displaystyle \frac{1}{nT}\sum_{i=1}^n \sum_{t=1 }^T \rho_{\tau}(V_{i,t}) \,+\, \nu_{1} \sum_{j=1}^{p} w_j \vert Z_{\theta_j} \vert \,+\, \nu_2 \| \tilde{\Pi} \|_* \\
\text{subject to} & V = W,\,\,\,\,\, W= Y- X\tilde{\theta} - Z_{\Pi },\\
& \,\,\,\,\, Z_{\Pi } - \tilde{\Pi} =0,\,\,\,\,\, Z_{\theta} -\tilde{\theta} =0. \\
\end{array}
\end{equation}
To solve (\ref{eqn:formulation3}), we propose a scaled version of the ADMM algorithm which relies on the following Augmented Lagrangian
\begin{equation}
\label{eqn:augmented_lagranian}
\begin{array}{lll}
\mathcal{L}(\tilde{\theta} , \tilde{\Pi},V Z_{\theta},Z_{\Pi },W,U_V, U_W, U_{\Pi},U_{\theta} ) &=& \displaystyle \frac{1}{nT}\sum_{i=1}^n \sum_{t=1 }^T \rho_{\tau}(V_{i,t}) \,+\, \nu_{1} \sum_{j=1}^{p} w_j \vert Z_{\theta_j} \vert \,+\, \nu_2 \| \tilde{\Pi} \|_*\\
& & \displaystyle +\, \frac{\eta}{2}\| V - W + U_V \|_F^2 \, +\, \frac{\eta}{2}\|W- Y + X\theta + Z_{ \Pi } + U_W\|_F^2\\
& & \displaystyle + \, \frac{\eta}{2} \| Z_{\Pi} - \tilde{ \Pi} + U_{\Pi}\|_F^2 \, +\, \frac{\eta}{2} \| Z_{\theta} - \tilde{ \theta} + U_{\theta}\|_F^2,
\end{array}
\end{equation}
where $\eta >0$ is a penalty parameter.
Notice that in (\ref{eqn:augmented_lagranian}), we have followed the usual construction of ADMM via introducing
the scaled dual variables corresponding to the constraints in (\ref{eqn:formulation3}) -- those are $U_V$, $U_W$, $U_{\Pi}$,
and $U_{\theta}$. Next, recall that ADMM proceeds by iteratively minimizing the Augmented Lagrangian in blocks with respected to the original variables, in our case $(V, \tilde{ \theta},\tilde{ \Pi})$ and $(W,Z_{\theta},Z_{\Pi})$, and then updating the scaled dual variables (see Equations 3.5--3.7 in \cite{boyd2011distributed}). The explicit updates can be found in the Supplementary Material. Here, we highlight the updates for $Z_{\theta}$, $\tilde{\Pi}$, and $V$. For updating $Z_{\theta}$ at iteration $k+1$, we solve the problem
\[
\displaystyle Z_{ \theta }^{(k+1)} \,\leftarrow \,\underset{Z_{\theta} \in \mathbb{R}^{ p} }{\arg \min}\left\{ \frac{1}{2}\| Z_{\theta} -\tilde{\theta}^{(k+1)} + U_{\theta}^{(k)} \|_F^2 + \frac{ \nu_{1}}{\eta} \sum_{j =1 }^{p} w_j \vert (Z_{\theta})_j \vert \right\}.
\]
This can be solved in closed form exploiting the well known thresholding operator, see the details in Section \ref{sec:proog_thm1}. As for updating $\tilde{\Pi}$, we solve
\begin{equation}
\label{eqn:update_pi}
\displaystyle\tilde{ \Pi}^{(k+1)} \,\leftarrow\,\underset{ \tilde{ \Pi} \in \mathbb{R}^{ n \times T} }{\arg \min}\left\{ \frac{ \nu_2 }{\eta}\|\tilde{ \Pi } \|_* + \frac{1}{2}\| Z_{\Pi}^{(k)} - \tilde{\Pi} + U_{\Pi }^{(k)} \|_F^2 \right\},
\end{equation}
via the singular value shrinkage operator, see Theorem 2.1 in \cite{cai2010singular}.
Furthermore, we update $V$, at iteration $k+1$, via
\begin{equation}
\label{eqn:update_v}
\displaystyle V^{(k+1)} \,\leftarrow \, \underset{V \in \mathbb{R}^{ n \times T} }{\arg \min}\,\,\left\{ \frac{1}{nT}\sum_{ i= 1}^n \sum_{ t= 1}^T \rho_{\tau}(V_{i,t}) + \frac{\eta}{2}\|V-W^{(k)}+ U_V^{(k)}\|_F^2 \right\},
\end{equation}
which can be found in closed formula by Lemma 5.1 from \cite{ali2016multiple}.
\begin{remark}
After estimating $\Pi(\tau)$, we can estimate $\lambda_i(\tau) $ and $g_t(\tau)$ via the singular value decomposition of $\hat{\Pi}(\tau)$ and following equation
\begin{equation}
\label{eqn:svd}
\hat{\Pi}(\tau)_{i,t} \,=\, \hat{\lambda}_i(\tau)^{\prime} \hat{g}_t(\tau),
\end{equation}
where $\hat{\lambda}_i(\tau) $ and $\hat{g}_t(\tau)$ are of dimension $\hat{r}_{\tau}$. This immediately leads to factors and loadings estimated that can be used to obtain insights about the structure of the data. A formal identification statement is given in Corollary \ref{cor1}.
\end{remark}
Finally, it is immediate to modify the proposed ADMM to the case when there are no covariates ($\beta(\tau) =0$), see Section \ref{sec:no_covariates} in the Supplementary Material. Hence, our proposed estimation procedure can be applied to settings (i) with low dimensional covariates, or (ii) without covariates. However, in what follows, we focus on the high dimensional covariates setting.
\section{Theory} \label{sec:theory}
The purpose of this section is to provide statistical guarantees for the estimator developed in the previous section. We focus on estimating the quantile function, allowing for the high dimensional scenario where $p$ and $T$ can grow as $n$ grows.
\subsection{ Estimating the quantiles} \label{sec:theory_dense}
We show that our proposed estimator is consistent for estimating the conditional quantiles.
Throughout, we treat $\Pi(\tau)$ as fixed parameters. As for the data generation process, our next condition requires that the observations are independent across $i$, and weakly dependent across time.
\begin{assumption}
\label{cond1}
We assume that
\[
Y_{i,t} | X_{i,t}; \theta(\tau), \Pi_{i,t}(\tau)\, = \, X_{i,t}^{\prime} \theta(\tau)+\Pi_{i,t}(\tau) + \epsilon_{i,t},
\]
where $\mathbb{P}( \epsilon_{i,t} \leq 0 | X_{i,t}^{\prime} \theta(\tau)+\Pi_{i,t}(\tau)) = \tau$. Furthermore, the following holds:
\begin{enumerate}[label=(\roman*)]
\item There exists a function $G \,:\, [0,1]^d \rightarrow [g_1,g_2]$ for positive constants $g_1$ and $g_2$ such that, conditional on $\Pi$ and $\{ X_{i,t} \}_{i \in [n], t \in [T] }$, $\epsilon_{i,t} = \varepsilon_{i,t} G(X_{i,t})$ where
$\{ \varepsilon_{i,t}\}_{t=1,\ldots,T}$ are independent across $i$. Also, for each $i \in [n]$, the sequence $\{ \varepsilon_{i,t}\}_{t=1,\ldots,T}$ is stationary and $\beta$-mixing with mixing coefficients satisfying $\sup_i \gamma_i(k) \,=\, O(k^{-\mu} )$ for some $\mu> 2$. Moreover, there exists $\mu^{\prime } \in (0, \mu) $, such that
\begin{equation}
\label{eqn:mixing}
npT \left( \floor*{ T^{ 1/(1+ \mu^{\prime} ) } } \right)^{-\mu }\,\rightarrow\, 0.
\end{equation}
Here,
\[
\begin{array}{lll}
\gamma_{i}(k) &=&\displaystyle \frac{1}{2}\ \underset{l\geq1}{\sup}\bigg\{\sum_{j=1}^{L}\sum_{j^{\prime}=1}^{L^{\prime}}\vert\mathbb{P}(A_{j}\cap B_{j^{\prime}})-\mathbb{P}(A_{j})\mathbb{P}(B_{j^{\prime}})\vert \,\bigg| \, \text{with}\,\,\{A_{j}\}_{j=1}^L \,\,\,\\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\text{paritition of }\,\,\, \sigma(\{\varepsilon_{i,1}\},\ldots,\{\varepsilon_{i,l}\}),\,\,\,\text{and}\,\,\{B_{j^{\prime}}\}_{j^{\prime}=1}^{ L^{\prime} }\\
&&\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\text{paritition of }\,\,\,\sigma(\{\varepsilon_{i,l+k}\},\{\varepsilon_{i,l+k+1}\}\ldots)\bigg\}.
\end{array}
\]
\item There exists $\underline{f} >0$ satisfying
\[
\underset{1\leq i\leq n,\,1\leq t\leq T,\,x\in\mathcal{X}, \vert \tilde{\delta}_{i,t} \vert \leq L \,}{\inf}\,f_{Y_{i,t}|X_{i,t};\theta(\tau),\Pi_{i,t}(\tau)}(x^{\prime}\theta(\tau)+\Pi_{i,t}(\tau) + \tilde{\delta}_{i,t}|x;\theta(\tau),\Pi_{i,t}(\tau))\,>\,\underline{f},
\]
for some $L >0$, where $f_{ Y_{i,t} | X_{i,t}; \theta, \Pi_{i,t} }$ is the probability density function associated with $Y_{i,t}$ when conditioning on $X_{i,t}$, and with parameters $\theta(\tau)$ and $\Pi_{i,t}(\tau)$.
\end{enumerate}
\end{assumption}
Note that Assumption \ref{cond1} is related to the sampling and smoothness assumption of \cite{belloni2011l1}. Furthermore, we highlight that similar to \cite{belloni2011l1}, our framework is rich enough that avoids imposing Gaussian modeling constraints. However, unlike \cite{belloni2011l1}, we consider panel data with weak correlation across time. In particular, we refer readers to \cite{yu1994rates} for thorough discussions on $\beta$-mixing. Another difference with \cite{belloni2011l1} is that we do not require any smoothness assumption on the condition density function of the response given the covariates.
It is worth mentioning that the parameter $\mu$ in Assumption \ref{cond1} controls the strength of the time dependence in the data while parameter $\mu’$ will relate to the tuning parameters and will impact the rates. As we decrease the value of $\mu’$ condition (\ref{eqn:mixing}) is easier to satisfy but the tuning parameters increase and slow down the rates of convergence. Furthermore, in the case that $\{(Y_{i,t},X_{i,t})\}_{ i \in [n], t \in [T] }$ are independent our theoretical results will hold without imposing (\ref{eqn:mixing}).
Next, we require that along each dimension the second moment of the covariates is one. We also assume that the second moments can be reasonably well estimated by their empirical counterparts.
\begin{assumption}
\label{cond2}
We assume $\mathbb{E}(X_{i,t,j}^2) = 1$ for all $i \in [n], t\in [T],j \in [p] $. Then
\begin{equation}\label{eq:sigma}
\hat{\sigma}_j ^2\,=\, \frac{1}{n T} \sum_{i=1}^n \sum_{t=1}^T X_{i,t,j}^2,\,\,\,\,\, \forall j \in [p],
\end{equation}
and we require that
\[
\mathbb{P}\left( \underset{ 1\leq j\leq p }{\max}\, \,\vert\hat{\sigma}^2_{j}-1 \vert \,\leq \, \frac{1}{4} \right) \,\geq \, 1- \gamma \, \,\,\,\rightarrow\,\,\, 1, \,\,\,\,\,\,\text{as}\,\,\,\,\,\ n\rightarrow \infty.
\]
\end{assumption}
\vspace{0.1in}
Assumption \ref{cond2} appeared as Condition D.3 in \cite{belloni2011l1}. It is met by general models on the covariates, see for instance Design 2 in \cite{belloni2011l1}.
Using the empirical second order moments $\{\hat{\sigma}_j^2 \}_{j=1}^p$, we analyze the performance of the constrained estimator
\begin{equation}
\label{eqn:prob_1}
(\hat{\theta}(\tau) , \hat{\Pi}(\tau) ) \,=\,
\underset{( \tilde{\theta} , \tilde{\Pi})}{\arg \min} \left\{ \hat{Q}_{\tau}(\tilde{\theta},\tilde{\Pi}) \,+\, \nu_{1} \|\tilde{\theta}\|_{1,n,T} +\nu_2 \|\tilde{\Pi}\|_* \right\},\\
\end{equation}
where $\nu_1,\nu_2 \,>\, 0$ are tuning parameters and $\|\tilde{\theta}\|_{1,n,T} \,:=\, \sum_{j =1 }^{p} \hat{\sigma}_j \vert \tilde{\theta}_j\vert$,
\[
\displaystyle \hat{Q}_{\tau}(\tilde{\theta},\tilde{\Pi}) \,=\, \frac{1}{nT}\sum_{i=1}^n \sum_{t=1}^T \rho_{\tau}( Y_{i,t} - X_{i,t}^{\prime}\tilde{\theta} - \tilde{\Pi}_{i,t}),
\]
with $\rho_{\tau}$ as defined in Section \ref{sec:problem_formulation}.
Our main result of this subsection is provided next.
\begin{theorem}
\label{thm_c}
Let $ (\hat{\theta}(\tau) , \hat{\Pi}(\tau) )$ be the estimator defined in (\ref{eqn:prob_1}). Let us write
\[
q_{i,t} \,=\, X_{i,t}^{\prime}\theta_{i,t}(\tau) + \Pi_{i,t}(\tau), \,\,\, \hat{q}_{i,t} \,=\, X_{i,t}^{\prime}\hat{\theta}_{i,t}(\tau) + \hat{\Pi}_{i,t}(\tau),
\]
for the conditional quantiles and their estimates. Then under Assumptions \ref{cond1}--\ref{cond2}, we have that for any sequence $\{m_n\}$, $m_n \rightarrow \infty$, it holds that
\[
\begin{array}{lll}
\displaystyle \frac{1}{nT} \sum_{i=1}^{n} \sum_{t=1}^{T} \min\{ \vert q_{i,t} -\hat{q}_{i,t} \vert,(q_{i,t} -\hat{q}_{i,t} )^2 \} &=& \displaystyle O_{\mathbb{P}}\bigg( m_n\sqrt{c_T}\left( \frac{1}{\sqrt{n}} + \frac{1}{\sqrt{d_T}} \right)\bigg( \frac{\| \Pi(\tau)\|_* }{nT} \,+\,\\
& &\,\,\,\,\,\,\,\,\,\,\,\sqrt{ \log(\max\{ n,p c_T\}) }\|\beta(\tau)\|_1 \bigg) \bigg)
\end{array}
\]
with probability approaching one provided that $T,n \rightarrow \infty$, and the tuning parameters satisfy
\[
\nu_{1} \,\asymp\,\sqrt{ \frac{ c_T \log( \max\{n,pc_T\} ) }{ n d_T} }( \sqrt{n} + \sqrt{d_T} ) ,
\]
and
\[
\nu_2 \,\asymp\, \frac{ c_T}{n T}\left( \sqrt{n} + \sqrt{d_T} \right),
\]
where $c_T \,=\, \ceil{ T^{ 1/(1+ \mu^{\prime} ) } } $, $d_T = \floor{ T/(2c_T) } $.
\end{theorem}
Theorem \ref{thm_c} shows that we can consistently estimate the conditional quantiles at a rate that combines the sparse and dense signal magnitudes. This result differs from \cite{belloni2011l1} in several ways. First, \cite{belloni2011l1} work with cross sectional data and focus on the estimation of the vector of parameter coefficients instead of the conditional quantiles. Therefore the assumptions for Theorem \ref{thm_c} and those in \cite{belloni2011l1} are very different. For example, \cite{belloni2011l1} required a minimum eigenvalue condition on the behavior of the design matrix, whereas we can avoid this. Furthermore, unlike \cite{belloni2011l1}, Theorem \ref{thm_c} allows for panel data with dependence across time. This translates into a technical challenge to arrive at Theorem \ref{thm_c}, since it is not possible to use the analysis from \cite{belloni2011l1} which relies heavily on independence. In fact, the minimum eigenvalue condition in \cite{belloni2011l1} (Condition D.4) can be difficult to be verified in practice without the independence data assumption, and hence Theorem \ref{thm_c} has a different setting than those results in \cite{belloni2011l1}. Also, our setting and estimator involve the latent factors which make both the estimator and theory more complex than the framework in \cite{belloni2011l1}. Lastly, while some of the ideas in the proof of Theorem \ref{thm_c} come from \cite{padilla2020adaptive}, all of the technical steps involved in the proof of Theorem \ref{thm_c} are novel.
On another note, the rate of $T$ in Theorem \ref{thm_c} must be such that $T \rightarrow \infty$ and $T$ satisfies (\ref{eqn:mixing}). The parameter $\mu'$ in (\ref{eqn:mixing}) controls the terms $c_T=\lceil T^{1/(1+\mu')}\rceil$ and $d_T= \lfloor T/(2c_T)\rfloor$ both of which determine the tuning parameters and imply specific rates of convergence. Cearly, $c_T \cdot d_T \asymp T$. Moreover, the parameter $c_T$ measures the strength of the dependence in the data, whereas $d_T$ can be interpreted as the effective number of independent samples across time. In particular, when $c_T \asymp 1$, we have that $\{\epsilon_{i,t}\}$ are basically independent across time, and so the final rate depends on $T$. As a different example, since we would like $d_T \gg c_T$, with $\mu'=2$ we have $c_T \sim T^{1/3}$ and $d_T \sim T^{2/3}$ so that $\nu_1 \sim (T^{-1/6}+ \sqrt{T^{1/3}/n})\sqrt{\log(npT)}$ and $\nu_2 \sim \frac{1}{\sqrt{n}T^{2/3}}+\frac{1}{n T^{1/3}}$. In this case condition (\ref{eqn:mixing}) requires the parameter $\mu$ that governs the mixing speed to be such that $npT \ll T^{\mu/3}$.
\subsection{Estimating the coefficients and latent factors}
\label{sec:disantangle}
We show that our proposed estimator is consistent for estimating the vector of coefficients and latent factors separately in a broad range of models, and in some cases attains minimax rates, as in \cite{candes2009tight}.
In order to obtain our main result of this subsection, we first provide some additional notation and assumptions. For a fixed $\tau >0$, we assume that (\ref{eqn:first_model}) holds. We also let $T_{\tau}$ be the support of $\theta(\tau)$, thus
\[
T_{\tau } \,=\, \left\{j \in [p] \,:\, \theta_j(\tau) \neq 0 \right\},
\]
and we write $s_{\tau} \,=\, \vert T_{\tau} \vert $, and $r_{\tau} \,=\, \text{rank}(\Pi(\tau))$.
\begin{assumption}
\label{cond4}
Conditional on $\Pi$, $\{(X_{i,t},\epsilon_{i,t})\}_{t=1,\ldots,T}$ are independent across $i$. Also, for each $i \in [n]$, the sequence $\{ (X_{i,t},\epsilon_{i,t})\}_{t=1,\ldots,T}$ is stationary and $\beta$-mixing with mixing coefficients satisfying $\sup_i \gamma_i(k) \,=\, O(k^{-\mu} )$ for some $\mu> 2$. Moreover, there exists $\mu^{\prime } \in (0, \mu) $, such that (\ref{eqn:mixing}) holds. In addition,
there exists $\underline{f} >0$ satisfying
\[
\underset{1\leq i\leq n,\,1\leq t\leq T,\,x\in\mathcal{X},\,}{\inf}\,f_{Y_{i,t}|X_{i,t};\theta(\tau),\Pi_{i,t}(\tau)}(x^{\prime}\theta(\tau)+\Pi_{i,t}(\tau)|x;\theta(\tau),\Pi_{i,t}(\tau))\,>\,\underline{f},
\]
where $f_{ Y_{i,t} | X_{i,t}; \theta, \Pi_{i,t} }$ is the probability density function associated with $Y_{i,t}$ when conditioning on $X_{i,t}$, and with parameters $\theta(\tau)$ and $\Pi_{i,t}(\tau)$. Furthermore, $ f_{ Y_{i,t} | X_{i,t}; \theta(\tau), \Pi_{i,t}(\tau) }(y| x; \theta(\tau), \Pi_{i,t}(\tau) )$ and $\frac{\partial}{\partial y} f_{ Y_{i,t} | X_{i,t}; \theta(\tau), \Pi_{i,t}(\tau) }(y|x; \theta(\tau), \Pi_{i,t}(\tau))$ are both bounded by $\bar{f}$ and $\bar{f}^{\prime}$, respectively, uniformly in $y$ and $x$ in the support of $X_{i,t}$.
\end{assumption}
As it can been seen in Lemma \ref{lem1} from the Supplementary Material, the error of our estimator defined in (\ref{eqn:prob_1}), $(\hat{\theta}(\tau) - \theta(\tau) , \hat{\Pi}(\tau) - \Pi (\tau) ) $, belongs to a restricted set, which in our framework is defined as
\begin{equation}
\label{eqn:restricted_set}
\begin{array}{l}
A_{\tau} = \Bigg\{ (\delta, \Delta )\in \mathbb{R}^p\times \mathbb{R}^{n\times T }\,:\, \|\delta_{ T_{\tau}^c }\|_1 + \frac{ \| \Delta \|_* }{\sqrt{nT} \sqrt{ \log( \max\{n,p c_T\} )} } \leq C_0 \left( \|\delta_{T_{\tau}}\|_1 + \frac{ \sqrt{r_{\tau}} \| \Delta\|_F }{\sqrt{nT} \sqrt{ \log( \max\{n,p c_T\} )} } \right) \Bigg\},\\
\end{array}
\end{equation}
for an appropriate positive constant $C_0$.
Similar in spirit to other high dimensional settings such as those in \cite{candes2007dantzig}, \cite{bickel2009simultaneous}, \cite{belloni2011l1} and \cite{dalalyan2017prediction}, we impose an identifiability condition involving the restricted set which is expressed next and will be used in order to attain our main results. This is the key difference with the analysis in Section \ref{sec:theory_dense}. Before arriving at our next condition, we introduce some notation.
For $m\geq 0$, we denote by $\overline{T}_{\tau }(\delta,m) \subset \{ 1,\ldots,p\} \backslash T_{\tau }$ the support ot the $m$ largest components, excluding entries in $T_{\tau }$, of the vector $(\vert\delta_1\vert, \ldots, \vert \delta_p \vert)^T$. We also use the convention $\overline{T}_{\tau }(\delta,0) \,=\,\emptyset$.
\begin{assumption}
\label{cond3}
For $(\delta,\Delta) \in A_{\tau }$, let
\[
\displaystyle J_{\tau }^{1/2}(\delta,\Delta) \,:=\, \sqrt{ \frac{ \underline{f} }{nT} \sum_{i=1}^n\sum_{t=1}^{T} \mathbb{E}\left( \left( X_{i,t}^{\prime}\delta + \Delta_{i,t} \right)^2 \right) }.
\]
Then there exists $m \geq 0$ such that
\begin{equation}
\label{eqn:identifiability}
0\,<\, \kappa_m \,:=\, \,\underset{ (\delta,\Delta) \in A_{\tau}, \delta \neq 0 }{\inf}\, \,\frac{ J_{\tau}^{1/2}(\delta,\Delta) }{ \| \delta_{T_{\tau} \cup \overline{T}_{\tau}(\delta,m)} \| + \frac{\|\Delta\|_F }{ \sqrt{nT}} },
\end{equation}
where $c_T \,=\, \ceil{ T^{ 1/(1+ \mu^{\prime} ) } } $ for $\mu^{\prime}$ as defined in Assumption \ref{cond2}.
Moreover, we assume that the following holds
\begin{equation}
\label{eqn:nonlinearity}
0 \,<\, q\,:=\, \displaystyle \frac{3}{8} \, \frac{ \underline{f}^{3/2} }{ \overline{f}^{\prime} } \,\underset{ (\delta,\Delta) \in A_{\tau}, \delta \neq 0 }{\inf}\,\frac{ \left( \mathbb{E} \left( \frac{1}{nT}\sum_{i=1}^{n}\sum_{t=1}^{T} ( X_{i,t}^{\prime} \delta + \Delta_{i,t} )^2 \right) \right)^{3/2} }{ \mathbb{E} \left( \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^{T} \vert X_{i,t}^{\prime} \delta + \Delta_{i,t} \vert^3 \right) },
\end{equation}
with $\underline{f}$ and $\overline{f}^{\prime}$ as in Assumption \ref{cond1}.
\end{assumption}
Few comments are in order. First, if $\Delta =0$ then (\ref{eqn:identifiability}) and (\ref{eqn:nonlinearity}) become the restricted identifiability and nonlinearity conditions as of \cite{belloni2011l1}. Second, the
denominator of (\ref{eqn:identifiability}) contains the term $\|\Delta\|_F /(\sqrt{nT})$. To see why this is reasonable, consider the case where $\mathbb{E}(X_{i,t}) =0$, and $X_{i,t}$ are i.i.d.. Then
\[
J_{\tau }(\delta,\Delta) \,=\, \underline{f} \, \mathbb{E}( (\delta^{\prime} X_{i,t})^2 ) + \frac{ \underline{f} }{nT} \|\Delta\|_F^2.
\]
Hence, $\|\Delta\|_F /(\sqrt{nT})$ appears also in the numerator of (\ref{eqn:identifiability}) and it is not restrictive its presence in the denominator of (\ref{eqn:identifiability}).
We now state our result for estimating $\theta(\tau)$ and $\Pi(\tau)$.
\begin{theorem}
\label{thm:1}
Let $ (\hat{\theta}(\tau) , \hat{\Pi}(\tau) ) $ be the estimator defined in (\ref{eqn:prob_1}). Suppose that Assumptions \ref{cond2}--\ref{cond3} hold and that
\begin{equation}
\label{eqn:signal}
q\, \geq C \, \frac{ \phi_{n} \sqrt{ c_T \log (pc_T \vee n) }(\sqrt{s_{\tau}+1}+ \sqrt{r_{\tau}/ \log (pc_T \vee n) } ) (\sqrt{n} +\sqrt{d_T}) }{ \sqrt{n d_T} \kappa_{0} \underline{f}^{1/2} },
\end{equation}
for a large enough constant $C$, and $\{\phi_{n}\}$ is a sequence with $\phi_n/(\sqrt{\underline{f} } \log(c_T+1) )\,\rightarrow \, \infty$.
Then
\begin{equation}
\|\hat{\theta}(\tau) -\theta(\tau)\| \,=\, O_{\mathbb{P}}\left( \frac{ \phi_{n} \left(1+ \sqrt{\frac{s_{\tau}}{m}}\right) }{\kappa_m } \frac{ \sqrt{ c_T \, \log(p c_T \vee n )}(\sqrt{ 1+s_{\tau}}+\sqrt{\frac{r_{\tau}}{\log(p c_T \vee n )}} ) }{\kappa_{0} \underline{f}^{1/2} }\left( \frac{1}{\sqrt{n}} +\frac{1}{\sqrt{d_T}} \right ) \right),
\end{equation}
and
\begin{equation}
\label{eqn:upper_bound1}
\frac{1}{nT} \| \hat{\Pi}(\tau) -\Pi(\tau) \|_F^2 \,=\, O_{\mathbb{P}}\left( \frac{ \phi_{n}^2 c_T \log(p c_T \vee n ) ( 1+s_{\tau} + \frac{r_{\tau}}{\log(p c_T \vee n )} ) }{\kappa_{0}^4 \, \, \underline{f} }\left( \frac{1}{n} +\frac{1}{d_T} \right ) \right),
\end{equation}
for choices of the tuning parameters as in Theorem \ref{thm_c}.
\end{theorem}
Theorem \ref{thm:1} gives an upper bound on the performance of $(\hat{\theta}(\tau),\hat{\Pi}(\tau))$ for estimating the vector of coefficients $\theta(\tau)$ and the latent matrix $\Pi(\tau)$. For simplicity, consider the case of i.i.d data. Then
the convergence rate of our estimation of $\theta(\tau)$, under the Euclidean norm, is in the order of $(\sqrt{s_{\tau}} + \sqrt{ r_{\tau} })/\min\{ \sqrt{n}, \sqrt{d_T} \} $, if we ignore all the other factors. Hence, we can consistently estimate $\theta(\tau)$ provided that $ \max\{s_{\tau},r_{\tau} \} << \min\{ n,T \} $. This is similar to the low-rank condition in \cite{negahban2011estimation}. In the low dimensional case $s_{\tau} = O(1)$, the rate $\sqrt{ r_{\tau} }/\min\{ \sqrt{n}, \sqrt{d_T} \} $
matches that of Theorem 1 in \cite{moon2018nuclear}. However, unlike \cite{moon2018nuclear}, our estimator is based on a loss function that is robust to outliers, and our assumptions also allow for weak dependence across time, making our framework potentially more general. Furthermore, the same applies to our rate on the mean squared error for estimating $\Pi(\tau)$, which also matches that in Theorem 1 of \cite{moon2018nuclear}.
With regards to the novelty of Theorem \ref{thm:1}, we highlight that, while its proof is similar in spirit to that of Theorem 2 in \cite{belloni2011l1}, there are some significant differences. First, the construction of the restricted set used in Theorem \ref{thm:1} involves two different penalties which makes challenging to disentangle the behavior of $\hat{\beta}(\tau)$ and $\hat{\Pi}$, whereas \cite{belloni2011l1} only had to dealt with one penalty. Second, the empirical processes in \cite{belloni2011l1} all involved independent data whereas as the proof of Theorem \ref{thm:1} handles the time dependence of our model and the latent factors.
Interestingly, it is expected that the rate in Theorem \ref{thm:1} is optimal. To elaborate on this point, consider the simple case where $n = T$, $\theta = 0$, $\tau = 0.5$, and $e_{i,t} := Y_{i,t} - \Pi_{i,t}(\tau)$ are mean zero i.i.d. sub-Gaussian($\sigma^2)$. The latter implies that
\[
\mathbb{P}( \vert e_{1,1}\vert > z) \,\leq \, C_1 \exp\left( -\frac{z^2}{2 \sigma^2} \right),\,\,\,\,
\]
for a positive constant $C_1$, and for all $z >0$. Then by Theorem 2.3 in \cite{candes2009tight}, we have the following lower bound for estimating $\Pi(\tau)$:
\begin{equation}
\label{eqn:lower_bound}
\underset{ \hat{\Pi} }{\inf} \,\,\underset{ \Pi(\tau) \,:\, \text{rank}(\Pi(\tau) )\leq r_{\tau} }{\sup}\,\mathbb{E}\left( \frac{\| \hat{\Pi}(\tau) - \Pi(\tau) \|_F^2 }{n T} \right) \,\geq \, \frac{r_{\tau} \sigma^2 }{n}.
\end{equation}
Notably, the lower bound in (\ref{eqn:lower_bound}) matches the rate implied by Theorem \ref{thm:1}, ignoring other factors depending on $s_{\tau}$, $\kappa_0$, $\kappa_m$, $p$ and $\phi_n$. However, we highlight that the upper bound (\ref{eqn:upper_bound1}) in Theorem \ref{thm:1} holds without the perhaps restrictive condition that the errors are sub-Gaussian.
We conclude this section with a result regarding the estimation of the factors and loadings of the latent matrix $\Pi(\tau)$. This is expressed in Corollary
\ref{cor1} below and is immediate consequence of Theorem \ref{thm:1} and Theorem 3 in \cite{yu2014useful}.
\begin{corollary}
\label{cor1}
Suppose that the all the conditions of Theorem \ref{thm:1} hold. Let $\sigma_1(\tau) \geq \sigma_2(\tau) \geq \ldots \geq \sigma_{r_{\tau}}(\tau) > 0$ be the singular values of $\Pi(\tau)$, and $\hat{\sigma}_1(\tau)\geq \ldots \geq \hat{\sigma}_{ \min\{n,T\} }(\tau)$ the singular values of $\hat{\Pi}(\tau)$. Let $g(\tau), \hat{g}(\tau) \in \mathbb{R}^{ T \times r_{\tau} }$ and $\lambda(\tau), \hat{\lambda}(\tau),\tilde{\lambda}(\tau), \tilde{\hat{\lambda}}(\tau) \in \mathbb{R}^{ n \times r_{\tau} }$ be matrices with orthonormal columns satisfying
\[
\displaystyle \Pi(\tau ) \,=\, \sum_{ j=1}^{r_{\tau}} \sigma_j \, \tilde{\lambda}_{\cdot,j}(\tau) g_{\cdot,j}(\tau)^{\prime} \,=\,\sum_{ j=1}^{r_{\tau}} \lambda_{\cdot,j}(\tau) g_{\cdot,j}(\tau)^{\prime} ,
\]
and $\hat{\Pi}(\tau) \hat{g}_{\cdot,j}(\tau) = \hat{\sigma}_j(\tau) \tilde{\hat{\lambda}}_{\cdot,j}(\tau) = \hat{\lambda}_{\cdot,j}(\tau) $ for $j = 1,\ldots,r_{\tau}$. Then
\begin{equation}
\label{eqn:rate_svd}
\displaystyle
\underset{ O \in \mathbb{O}_{r_{\tau}} }{\min} \| \hat{g}(\tau) O - g(\tau)\|_F \,=\, O_{\mathbb{P}}\left( \frac{ (\sigma_1( \tau) +
\sqrt{r_{\tau} }\, \mathrm{Err} ) \mathrm{Err}}{(\sigma_{r_{\tau} -1}( \tau))^2 - (\sigma_{r_{\tau} }( \tau))^2 } \right),
\end{equation}
and
\begin{equation}
\label{eqn:rate_svd2}
\begin{array}{lll}
\displaystyle \frac{\| \hat{\lambda}(\tau) - \lambda(\tau)\|_F^2}{nT} &\,=\,&O_{\mathbb{P}}\Bigg( \frac{ r_{\tau}\,\phi_{n}^2 c_T \log(p c_T \vee n )((1+s_{\tau} + r_{\tau}/ \log(p c_T \vee n ) ) }{\kappa_{0}^4 \, \, \underline{f} }\left( \frac{1}{n} +\frac{1}{d_T} \right ) \,+\, \\
& & \,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\frac{\sigma_1^2}{nT} \frac{ (\sigma_1( \tau) +
\sqrt{r_{\tau} }\, \mathrm{Err} )^2 \mathrm{Err} ^2 }{ \left( (\sigma_{r_{\tau} -1}( \tau))^2 - (\sigma_{r_{\tau} }( \tau))^2 \right)^2 } \Bigg).
\end{array}
\end{equation}
Here, $ \mathbb{O}_{r_{\tau}}$ is the group of $r_{\tau} \times r_{\tau}$ orthonormal matrices, and
\[
\mathrm{Err} \,:=\, \frac{ \phi_{n} c_T \sqrt{\log(p c_T \vee n )} (\sqrt{1+s_{\tau} } + \sqrt{r_{\tau}/ \log(p c_T \vee n ) } ) }{\kappa_{0}^2 \, \, \underline{f}^{1/2} }\left( \sqrt{n} + \sqrt{d_T} \right ).
\]
\end{corollary}
A particularly interesting instance of Corollary \ref{cor1} is when
$$(\sigma_1(\tau ))^2,\,(\sigma_{r_{\tau} -1}( \tau))^2 - (\sigma_{r_{\tau} }( \tau))^2\,\asymp \,n T, $$ a natural setting if the entries of $\Pi(\tau)$ are $O(1)$. Then the upper bound (\ref{eqn:rate_svd}) becomes
\[
\underset{ O \in \mathbb{O}_{r_{\tau}} }{\min} \| \hat{g}(\tau) O - g(\tau)\|_F \,=\, O_{\mathbb{P}}\left( \frac{ \phi_n \sqrt{ c_T \,\log(p c_T \vee n ) }(\sqrt{1+s_{\tau}}+ \sqrt{\frac{r_{\tau}}{\log(p c_T \vee n ) }} ) }{\kappa_{0}^2 \underline{f}^{1/2} }\left( \frac{1}{\sqrt{n}} +\frac{1}{\sqrt{d_T}} \right ) \right),
\]
whereas (\ref{eqn:rate_svd2}) is now
\[
\frac{\| \hat{\lambda}(\tau) - \lambda(\tau)\|_F^2}{nT}\,=\,O_{\mathbb{P}}\left( \frac{ r_{\tau}\,\phi_{n}^2 c_T \log(p c_T \vee n )(1+s_{\tau}+ r_{\tau}/ \log(p c_T \vee n ))}{\kappa_{0}^4 \, \, \underline{f} }\left( \frac{1}{n} +\frac{1}{d_T} \right ) \right).
\]
The conclusion of Corollary \ref{cor1} allows us to provide an upper bound on the estimation of factors ($g(\tau)$) and loadings ($\lambda(\tau)$) of the latent matrix $\Pi(\tau)$. Notice that we are not claiming that we provide consistent estimation of the number latent factors, as Theorem \ref{thm:1} only guarantees consistent estimation of $\Pi(\tau)$. However, other authors, e.g. \cite{moon2015linear}, have observed that estimation can be possible even if $r_{\tau}$ is unknown.
\subsection{Nearly low rank quantiles}
We conclude our theory section by studying the case where the matrix $X\theta(\tau)$ has nearley low rank. We make this formal by imposing the condition that $X\theta(\tau)$ can be perturbed into a low-rank matrix. While the result in this subsection differs in the choice of tuning parameters from those in Theorem \ref{thm:1}, our result here suggests that even in this low-rank setting there exists a choice of tuning parameters that allows our estimator to provide consistent estimation.
We view our setting below as an extension of the linear model in \cite{chernozhukov2018inference} to the quantile framework and reduced rank regression.
The specific condition is stated next.
\begin{assumption}
\label{cond5}
With probability approaching one, it holds that $\mathrm{rank}( X\theta(\tau) + \xi ) = O(r_{\tau})$, and
\[
\frac{\|\xi\|_{*}}{\sqrt{nT}} \,=\, O_{\mathbb{P}}\left( \frac{ c_T \phi_{n} \sqrt{ r_{\tau}}(\sqrt{n} +\sqrt{d_T}) }{ \sqrt{nT} \underline{f} }\right),
\]
with $c_T$ as defined in Theorem \ref{thm:1}. Furthermore, $\| X\theta(\tau) + \Pi(\tau) \|_{\infty} = O_{\mathbb{P}}(1)$.
\end{assumption}
Notice that in Assumption \ref{cond5}, $\xi$ is an approximation error. In the case $\xi=0$, the condition implies that $\mathrm{rank}( X\theta(\tau) ) = O(r_{\tau})$ with probability close to one.
Next, exploiting Assumption \ref{cond5}, we show that (\ref{eqn:prob_1}) provides consistent estimation of the quantile function, namely, of $X \theta(\tau) + \Pi(\tau)$.
\begin{theorem}
\label{thm3}
Suppose that Assumptions \ref{cond2}--\ref{cond5} hold. Let $(\hat{\theta}(\tau), \hat{\Pi}(\tau) )$ be the solution to (\ref{eqn:prob_1}) with the additional constraint that $\|\tilde{\Pi}\|_{\infty} \leq C$, for a large enough positive constant $C$.
Then
\[
\frac{1}{nT} \| \hat{\Pi}(\tau) -\Pi(\tau) - X\theta(\tau) \|_F^2 \,=\, O_{\mathbb{P}}\left( \frac{ ( \overline{f}^{\prime} )^2 \phi_{n}^2 c_T r_{\tau} }{ \, \underline{f}^4 }\left( \frac{1}{n} +\frac{1}{d_T} \right ) \right),
\]
where $\{\phi_{n}\}$ is a sequence with $\phi_n/(\sqrt{\underline{f} } \log(1+c_T) )\,\rightarrow \, \infty$, and for choices
$$
\nu_{1} \,\asymp\,\displaystyle \frac{1}{nT }\sum_{i=1}^n \sum_{t=1}^T \underset{j=1,\ldots,p}{\max}\, \left\vert \frac{ X_{i,t,j} }{\hat{\sigma}_j} \right\vert,
$$
and
$$\nu_2 \,\asymp\, \frac{c_T}{n T}\left( \sqrt{n} + \sqrt{d_T} \right).$$
\end{theorem}
Interestingly, unlike Theorem \ref{thm:1}, Theorem \ref{thm3} does not show that we can estimate $\theta(\tau)$ and $\Pi(\tau)$ separately. Instead, we show that $\hat{\Pi}(\tau)$, the estimated matrix of latent factors, captures the overall contribution of both $\theta(\tau)$ and $\Pi(\tau)$. This is expected since Assumption \ref{cond5} states that, with high probability, $X \theta(\tau)$ has rank of the same order as of $\Pi(\tau)$. Notably, $\hat{\Pi}(\tau)$ is able to estimate $X \theta(\tau) + \Pi(\tau)$ via requiring that the value of $ \nu_{1}$ increases significantly with respect to the choice in Theorem \ref{thm:1}, while keeping $\nu_2 \asymp c_T( \sqrt{n} +\sqrt{d_T} )/(nT)$.
As for the convergence rate in Theorem \ref{thm3} for estimating $\Pi(\tau)$, this is of the order $r_{\tau} c_T(n^{-1} + d_T^{-1})$, if we ignore $\underline{f}$, $\overline{f}^{\prime}$, and $\phi_n$. When the data are independent, the rate becomes of the order $r_{\tau} ( n^{-1} + T^{-1} ) $. In such framework, our result matches the minimax rate of estimation in \cite{candes2010matrix} for estimating an $n \times T$ matrix of rank $r_{\tau}$, provided that $n \asymp T$, see our discussion in Section \ref{sec:disantangle}.
\section{Simulation} \label{sec:Simulation}
In this section, we evaluate the performance of our proposed approach ($\ell_1$-NN-QR) with extensive numerical simulations focusing on the median case, namely the case when $\tau$ = 0.5. As benchmarks, we consider the $\ell_1$-penalized quantile regression studied in \cite{belloni2009computational}, and similarly we refer to this procedure as $\ell_1$-QR. We also compare with the mean case, which we denote it as $\ell_1$-NN-LS as it combines the $\ell_2$-loss function with $\ell_1$ and nuclear norm regularization. We consider different generative scenarios. For each scenario we randomly generate 100 different data sets and compute the estimates of the methods for a grid of values of $ \nu_{1}$ and $ \nu_{2}$. Specifically, these tuning parameters are taken to satisfy $ \nu_{1} \in \{10^{-4}, 10^{-4.5},\ldots,10^{-8} \}$ and $ \nu_{2} \in \{10^{-3}, 10^{-4} ,\ldots,10^{-9} \} $. Given any choice of tuning parameters, we evaluate the performance of each competing method, averaging over the 100 data sets, and report values that correspond to the best performance. These are referred as optimal tuning parameters and can be thought of as oracle choices.
We also propose a modified Bayesian Information Criterion (BIC) to select the best pair of tuning parameters. Given a pair $( \nu_{1}, \nu_{2})$, our method produces a score $(\hat{\theta}(\tau),\hat{\Pi}(\tau))$. Specifically, denote $\hat{s}_{\tau} = \vert \{ j\,:\, \hat{\theta}_j (\tau) \neq 0 \}\vert$ and $\hat{r}_{\tau} = \mathrm{rank}(\hat{\Pi}(\tau))$,
\begin{equation}
\label{eqn:score}
{\displaystyle
\begin{array}{lll}
\mathrm{BIC}(\nu_{1},\nu_{2})&=& \displaystyle \sum_{i=1}^{n}\sum_{t=1}^{T}\rho_{\tau}(Y_{i,t}-X_{i,t}^{\prime}\hat{\theta}(\nu_{1},\nu_{2})-\hat{\Pi}(\nu_{1},\nu_{2}))+\\
& &\displaystyle \frac{\log(nT)}{2}\left(c_{1}\cdot\hat{s}_{\tau}(\nu_{1},\nu_{2})+(1+n+T)\cdot\hat{r}_{\tau}(\nu_{1},\nu_{2})\right),
\end{array}}
\end{equation}
where $c_1 >0$ is a constant. The intuition here is that the first term in the right hand side of (\ref{eqn:score}) corresponds to the fit to the data. The second term includes the factor $\log (nT) /2$ to emulate the usual penalization in BIC. The number of parameters in the model with choices $ \nu_{1}$ and $ \nu_{2}$ is estimated by $\hat{s}_{\tau}$ for the vector of coefficients, and $(1+n+T) \cdot \hat{r}_{\tau}$ for the latent matrix. The latter is reasonable since $\hat{\Pi}(\tau)$ is potentially a low rank matrix and we simply count the number of parameters in its singular value decomposition. As for the extra quantity $c_1$, we have included this term to balance the dominating contribution of the $(1+n+T) \cdot \hat{r}_{\tau} $. We find that in practice $c_1 = \log^2 (nT)$ gives reasonable performance in both simulated and real data. This is the choice that we use in our experiments. Then for each of data set under each design, we calculate the minimum value of $\mathrm{BIC}( \nu_{1}, \nu_{2})$, over the different choices of $ \nu_{1}$ and $ \nu_{2} $, and report the average over the 100 Monte Carlo simulations. We refer to this as BIC-$\ell_1$-NN-QR.
As performance measure we use a scaled version (see Tables \ref{tab1}-\ref{tab2}) of the squared distance between the true vector of coefficients $\theta$ and the corresponding estimate. We also consider a different metric, the ``Quantile error" (\cite{koenker1999goodness}):
\begin{equation}
\label{eqn:quantile_error}
\displaystyle \frac{1}{nT} \sum_{i=1}^n \sum_{t=1}^T (F_{Y_{i,t} |X_{i,t}; \theta(\tau), \Pi(\tau) }^{-1}(0.5) - \hat{F}_{Y_{i,t} |X_{i,t}; \theta(\tau), \Pi(\tau)}^{-1}(0.5) )^2,
\end{equation}
which measures the average squared error between the quantile functions at the samples and their respective estimates. Since our simulations consider models with symmetric mean zero error, the above metric corresponds to the mean squared error for estimating the conditional expectation.
Next, we provide a detailed description of each of the generative models that we consider in our experiments. In each model design the dimensions of the problem are given by $ n \in \{100,500\}$, $p \in \{5,30\}$ and $T \in \{100,500\}$, and we also consider the instance $n=p=T=50$. The covariates $\{X_{i,t}\}$ are i.i.d $N(0,I_p)$.
\medskip
\textbf{Design 1. (Location shift model)} The data is generated from the model
\begin{equation}
\label{ex1}
Y_{i,t} = X_{i,t}^{\prime} \theta + \Pi_{i,t} + \epsilon_{i,t}, \,\,\,\,
\end{equation}
where $\sqrt{3} \epsilon_{i,t} \overset{i.i.d.}{\sim} t(3) $, $i = 1,\ldots,n$ and $t = 1,\ldots,T$, with $t(3)$ the Student's t-distribution with 3 degrees of freedom. The scaling factor $\sqrt{3}$ simply ensures that the errors have variance $1$. In (\ref{ex1}), we take the vector $\theta \in \mathbb{R}^p$ to satisfy
\[
\theta_j = \begin{cases}
1 &\text{if}\,\, j \in \{1,\ldots, \min\{10,p\} \}\\
0 &\text{otherwise.}
\end{cases}
\]
We also construct $\Pi \in \mathbb{R}^{n \times T}$ to be rank one, defined as
$ \Pi_{i,t} = 5i\,(\mathrm{cos}( 4\pi t/T ))/n.$
\medskip
\textbf{Design 2. (Location-scale shift model)} We consider the model
\begin{equation}
\label{ex2}
Y_{i,t} = X_{i,t}^{\prime} \theta + \Pi_{i,t} + ( X_{i,t}^{\prime} \theta)\epsilon_{i,t}, \,\,\,\,
\end{equation}
where $\epsilon_{i,t} \overset{i.i.d.}{\sim} N(0,1) $, $i = 1,\ldots,n$ and $t = 1,\ldots,T$. The parameters in $\theta$ and $\Pi$ in (\ref{ex2}) are taken to be the same as in (\ref{ex1}). The only difference now is that we have the extra parameter $\theta \in \mathbb{R}^{p}$, which we define as
$\theta_j = j/(2p)$ for $j \in \{1,\ldots,p\}$.
\medskip
\textbf{Design 3. (Location shift model with random factors)}
This is the same as Design 1 with the difference that we now generate $\Pi$ as
\begin{equation}
\label{eqn:d3}
\Pi_{i,t} \,=\, \sum_{k=1}^{5} c_k u_k v_k^T,
\end{equation}
where
\begin{equation}
\label{eqn:d3.1}
c_k \sim U[0,1/4], \,\,\,\, u_k = \frac{\tilde{u}_k}{ \| \tilde{u}_k \| }, \,\,\,\, \tilde{u}_k \sim N(0, I_n), \,\,\,\, v_k = \frac{\tilde{v}_k}{ \| \tilde{v}_k \| }, \,\,\,\, \tilde{v}_k \sim N(0, I_n),\,\,\,\, k = 1,\ldots,5.
\end{equation}
\begin{table}[h!]
\centering
\caption{\label{tab1} For Designs 1-2 described in the main text, under different values of $(n, p,T)$, we compare the performance of different methods. The metrics use are the scaled $\ell_2$ distance for estimating $\theta(\tau)$, and the Quantile error defined in (\ref{eqn:quantile_error}). For each method we report the average, over 100 Monte Carlo simulations, of the two performance measures. }
\medskip
\setlength{\tabcolsep}{4pt}
\begin{small}
\begin{tabular}{ rrrr|rr|rr}
\hline
& & & & Design 1 & & Design 2 &\\
\hline
Method & $n$ & $p$ & $T$ & $\,\,\,\,\,\frac{\|\hat{\theta}(\tau) -\theta(\tau) \|^2}{10^{-4}}$ &Quantile error & $\,\,\,\,\,\frac{\|\hat{\theta}(\tau) -\theta(\tau) \|^2}{10^{-4}}$ &Quantile error\\
\hline
$\ell_1$-NN-QR & 300 & 30 & 300 & \textbf{0.86} & \textbf{0.03} & \textbf{0.69} & \textbf{0.03}\\
BIC-$\ell_1$-NN-QR & 300 & 30 & 300 & \textbf{0.86} &\textbf{0.03} & 0.89 &\textbf{0.03}\\
$\ell_1$-NN-LS& 300 & 30 & 300 & 2.58 &0.05& 1.03 &0.04\\
$\ell_1$-QR & 300 & 30 & 300 & 8.18 &4.19& 6.81 &4.18\\
\hline
$\ell_1$-NN-QR & 300 & 30 & 100 & \textbf{2.99} & \textbf{0.04} & \textbf{2.39} & \textbf{0.04} \\
BIC-$\ell_1$-NN-QR & 300 & 30 & 100 & \textbf{2.99} & \textbf{0.04} & \textbf{2.39} & \textbf{0.04} \\
$\ell_1$-NN-LS& 300 & 30 & 100 & 8.06 &0.12 & 3.11 &0.08\\
$\ell_1$-QR & 300 & 30 & 100 & 41.0 &4.19 & 26.0 &4.19\\
\hline
$\ell_1$-NN-QR & 300 & 5 & 300 & \textbf{0.22} & \textbf{0.003} & \textbf{0.39} & \textbf{0.03}\\
BIC-$\ell_1$-NN-QR& 300 & 5 & 300 & \textbf{0.22} & \textbf{0.003}& 0.48 & \textbf{0.03} \\
$\ell_1$-NN-LS& 300 & 5 & 300 & 0.37 &0.01 & 0.69 & \textbf{0.03} \\
$\ell_1$-QR & 300 & 5 & 300 & 2.6 &4.19 & 3.27 &4.19\\
\hline
$\ell_1$-NN-QR & 300 & 5 & 100 & \textbf{0.50} & \textbf{0.008}& \textbf{0.80} &\textbf{0.03} \\
BIC-$\ell_1$-NN-QR & 300 & 5 & 100 & 0.53 &0.009 & 0.97 & \textbf{0.03}\\
$\ell_1$-NN-LS& 300 & 5 & 100 & 1.12 &0.02& 1.46 &0.04\\
$\ell_1$-QR & 300 & 5 & 100 & 7.87 &4.19 & 8.56 &4.19\\
\hline
$\ell_1$-NN-QR & 100 & 30 & 300 & \textbf{2.97} & \textbf{0.04} & \textbf{2.26} & \textbf{0.04} \\
BIC-$\ell_1$-NN-QR & 100 & 30 & 300 & \textbf{2.97} & \textbf{0.04} & 2.81 &\textbf{0.04}\\
$\ell_1$-NN-LS& 100 & 30 & 300 & 9.77 &0.12& 3.39 &0.06\\
$\ell_1$-QR & 100 & 30 & 300 & 40.0 &4.23& 24.0 &4.23\\
\hline
$\ell_1$-NN-QR & 100 & 30 & 100 & \textbf{2.3} & \textbf{0.04} & \textbf{10.0} & \textbf{0.03} \\
BIC-$\ell_1$-NN-QR& 100 & 30 & 100 & \textbf{2.3} & 0.06 & 11.0 & 0.04\\
$\ell_1$-NN-LS& 100 & 30 & 100 & 8.4 &0.79 & 13.0 &0.16\\
$\ell_1$-QR & 100 & 30 & 100 & 229.0 &4.23& 177.0 & 4.23\\
\hline
$\ell_1$-NN-QR & 100 & 5 & 300 & \textbf{0.64} & \textbf{0.008} & \textbf{0.89} & \textbf{0.03} \\
BIC-$\ell_1$-NN-QR& 100 & 5 & 300 & 0.65 & \textbf{0.008} & 1.32 & \textbf{0.03}\\
$\ell_1$-NN-LS& 100 & 5 & 300 & 1.25 &0.02& 1.67 &0.05\\
$\ell_1$-QR & 100 & 5 & 300 & 8.79 &4.23 & 8.61 &4.23\\
\hline
$\ell_1$-NN-QR & 100 & 5 & 100 & \textbf{1.82} & \textbf{0.009}& \textbf{3.30} & \textbf{0.03} \\
BIC-$\ell_1$-NN-QR & 100 & 5 & 100 & 1.85 & 0.01 & 3.74 & 0.04 \\
$\ell_1$-NN-LS& 100 & 5 & 100 & 4.06 &0.03& 4.45 &0.14\\
$\ell_1$-QR & 100 & 5 & 100 & 32.0 &4.23 & 27.0 &4.23\\
\hline
$\ell_1$-NN-QR & 50& 50 & 50 & \textbf{136.0} & \textbf{0.09} & \textbf{388.0} & \textbf{0.21}\\
BIC-$\ell_1$-NN-QR & 50 & 50 & 50 & 241.0 & 0.33 &522.0& 0.59\\
$\ell_1$-NN-LS& 50 & 50 & 50 & 2010 & 0.17 & 982&0.45\\
$\ell_1$-QR & 50& 50 & 50 & 1258 & 4.27 &2000.6 & 4.33\\
\hline
\end{tabular}
\end{small}
\end{table}
\begin{table}[h!]
\centering
\caption{\label{tab2} For Designs 3-4 described in the main text, under different values of $(n, p,T)$, we compare the performance of different methods. The metrics use are the scaled $\ell_2$ distance for estimating $\theta(\tau)$, and the Quantile error defined in (\ref{eqn:quantile_error}). For each method we report the average, over 100 Monte Carlo simulations, of the two performance measures. }
\medskip
\setlength{\tabcolsep}{4pt}
\begin{small}
\begin{tabular}{ rrrr|rr|rr}
\hline
& & & & Design 3 & & Design 4 &\\
\hline
Method & $n$ & $p$ & $T$ & $\,\,\,\,\,\frac{\|\hat{\theta}(\tau) -\theta(\tau) \|^2}{10^{-4}}$ &Quantile error & $\,\,\,\,\,\frac{\|\hat{\theta}(\tau) -\theta(\tau) \|^2}{10^{-4}}$ &Quantile error\\
\hline
$\ell_1$-NN-QR & 300 & 30 & 300 & \textbf{2.17} & \textbf{0.17} & \textbf{1.58}& \textbf{0.11} \\
BIC-$\ell_1$-NN-QR & 300 & 30 & 300 & 2.17 &0.29 & 2.81 & 0.26\\
$\ell_1$-NN-LS& 300 & 30 & 300 & 3.33 & 0.19 & 3.54 & 0.12\\
$\ell_1$-QR & 300 & 30 & 300 & 6.59 &1.09& 12.0 &1.01\\
\hline
$\ell_1$-NN-QR & 300 & 30 & 100 & \textbf{10.0} & 0.18 & \textbf{4.61} & \textbf{0.13} \\
BIC-$\ell_1$-NN-QR & 300 & 30 & 100 & 11.0 & 0.26 & \textbf{4.61} & 0.16 \\
$\ell_1$-NN-LS& 300 & 30 & 100 & 11.0 &0.25& 9.21 &0.17\\
$\ell_1$-QR & 300 & 30 & 100 & 27.0 &11.10 & 47.2 &1.10\\
\hline
$\ell_1$-NN-QR & 300 & 5 & 300 & \textbf{1.13} & \textbf{0.17} & \textbf{0.27} & \textbf{0.03}\\
BIC-$\ell_1$-NN-QR& 300 & 5 & 300 & 1.56 & 0.33& 0.74 & 0.13 \\
$\ell_1$-NN-LS& 300 & 5 & 300 & 1.58 & 0.19 & 0.49 & 0.05 \\
$\ell_1$-QR & 300 & 5 & 300 & 2.47 &1.10& 5.52 &1.09\\
\hline
$\ell_1$-NN-QR & 300 & 5 & 100 & \textbf{3.04} & \textbf{0.19}& \textbf{0.69} & 0.05\\
BIC-$\ell_1$-NN-QR & 300 & 5 & 100 & 4.37 &0.27 & 1.11 & 0.15\\
$\ell_1$-NN-LS& 300 & 5 & 100 & 4.43 &0.27& 1.12 & \textbf{0.05} \\
$\ell_1$-QR & 300 & 5 & 100 & 7.65 &1.11& 13.4 &1.10\\
\hline
$\ell_1$-NN-QR & 100 & 30 & 300 & \textbf{11.0} & \textbf{0.18} & \textbf{7.06} & \textbf{0.15}\\
BIC-$\ell_1$-NN-QR & 100 & 30 & 300 & 12.0 & 0.27 & 7.29 &0.24\\
$\ell_1$-NN-LS& 100 & 30 & 300 & 12.0 &0.34& 11.2 &0.18\\
$\ell_1$-QR & 100 & 30 & 300 & 26.0 &1.10& 51.0 &1.12\\
\hline
$\ell_1$-NN-QR & 100 & 30 & 100 & \textbf{6.12} & \textbf{0.17} & \textbf{32.1} & 0.10 \\
BIC-$\ell_1$-NN-QR& 100 & 30 & 100 & 6.64 & 0.22 & 35.4 & 0.15\\
$\ell_1$-NN-LS& 100 & 30 & 100 & 8.63 & 1.08& 82.0 & 0.84 \\
$\ell_1$-QR & 100 & 30 & 100 & 16.5 &1.12& 267.6 & 1.13 \\
\hline
$\ell_1$-NN-QR & 100 & 5 & 300 & \textbf{2.99} & \textbf{0.18} & \textbf{0.86} & \textbf{0.05} \\
BIC-$\ell_1$-NN-QR& 100 & 5 & 300 & 4.19 & 0.26& 1.43 & 0.14\\
$\ell_1$-NN-LS& 100 & 5 & 300 & 5.27 &0.33& 1.45 & \textbf{0.05} \\
$\ell_1$-QR & 100 & 5 & 300 & 8.59 &1.10&21.0 &1.09\\
\hline
$\ell_1$-NN-QR & 100 & 5 & 100 & \textbf{12.3} & \textbf{0.16}& \textbf{2.15} &\textbf{0.04} \\
BIC-$\ell_1$-NN-QR & 100 & 5 & 100 & 13.1 & 0.20& 2.43 &0.07 \\
$\ell_1$-NN-LS& 100 & 5 & 100 & 15.0 &1.09& 3.61 &0.07\\
$\ell_1$-QR & 100 & 5 & 100 & 24.7
& 1.10& 45.7 &1.09\\
\hline
$\ell_1$-NN-QR & 50& 50 & 50 & \textbf{386.7} & \textbf{0.32} & \textbf{511}& \textbf{0.27} \\
BIC-$\ell_1$-NN-QR & 50 & 50 & 50 & 898.1 & 0.97 & 1128.1 &0.74\\
$\ell_1$-NN-LS& 50 & 50 & 50 & 605.2 & 0.44 &967.3 &0.49\\
$\ell_1$-QR & 50& 50 & 50 & 1035.8 & 1.15 &1697.5 &1.18\\
\hline
\end{tabular}
\end{small}
\end{table}
\medskip
\textbf{Design 4. (Location-scale shift model with random factors)}
This is a combination of Designs 2 and 3. Specifically, we generate data as in (\ref{ex2}) but with $\Pi$ satisfying (\ref{eqn:d3}) and (\ref{eqn:d3.1}).
The results in Tables \ref{tab1}-\ref{tab2} show a clear advantage of our proposed method against the benchmarks across the four designs we consider. This is true for estimating the vector of coefficients, and under the measure of quantile error. Importantly, our approach is not only the best under the optimal choice of tuning parameters but it remains competitive with the BIC type of criteria defined with the score (\ref{eqn:score}). In particular, under Designs 1 and 2, the data driven version of our estimator, BIC-$\ell_1$-NN-QR, performs very closely to the ideally tuned one $\ell_1$-NN-QR. In the more challenging settings of Designs 3 and 4, we noticed that BIC-$\ell_1$-NN-QR performs reasonably well compared to $\ell_1$-NN-QR.
\section{Empirical Performance of the ``Characteristics + Latent Factor'' Model in Asset Pricing} \label{sec:Empirical}
\subsubsection*{Data Description}
We use data from CRSP and Compustat to construct 24 firm level characteristics
that are documented to explain the cross section and time series of stock returns
in the finance and accounting literature. The characteristics we choose
include well-known drivers of stock returns such as beta, size, book-to-market,
momentum, volatility, liquidity, investment and profitability. Table
\ref{Table-names} in the Supplementary Material lists details of the characteristics used and the methods to construct the data. We follow
the procedures of \cite{green2017characteristics} to construct the characteristics
of interest. The characteristics used in our model are standardized to have zero
mean and unit variance. Figure \ref{Figure-histogram-of-returns} plots the histogram of monthly stock
returns and $9$ standardized firm characteristics. Each of them have
different distribution patterns, suggesting the potential nonlinear
relationship between returns and firm characteristics, which can be potentially captured by our quantile model.
Our empirical design is closely related to the characteristics model proposed by \cite{daniel1997evidence, daniel1998characteristics}. To avoid any “data snooping” issue cause by grouping, we conduct the empirical analysis at individual stock level. Specifically, we use the sample period from January 2000 to December 2018, and estimate our model using monthly returns (228 months) from 1306 firms that have non-missing values during this period.
\begin{figure}[!h]
\begin{centering}
\includegraphics[width=7cm,height=7cm]{hist_return}\includegraphics[width=7cm,height=7cm]{hist_char}
\par\end{centering}
\caption{Histograms of monthly stock returns (left) and
firm characteristics (right).}\label{Figure-histogram-of-returns}
\end{figure}
\subsubsection*{A ``Characteristic + Latent Factor'' Asset Pricing Model}
We apply our model to fit the cross section and time series of stock returns (\citep{lettau2018estimating}). There are $n$ assets (stocks), and the return of the each asset can potentially be explained by $p$ observed asset characteristics (sparse part) and $r$ latent factors (dense part). The asset characteristics are the covariates in our model. Our model imposes a sparse structure on the $p$ characteristics so that only the characteristics having the strongest explanatory powers are selected by the model. The part that's unexplained by the firm characteristics are captured by latent factors.
\begin{figure}[!h]
\begin{raggedright}
\includegraphics[width=15cm,height=8cm]{beta_plot}
\par\end{raggedright}
\caption{Estimated Coefficients as a Function of $ \nu_{1}$.
This figure plots the estimated coefficient $\theta$ when the tuning parameter
$ \nu_{1}$ changes, for $\tau = \{0.1, 0.5, 0.9\}$. The parameter
$ \nu_{2}$ is fixed at $\log_{10}( \nu_{2})=-4$.}\label{Figure-solution-pas}
\end{figure}
Suppose we have $n$ stock returns ($R_{1}$,...,$R_{n}$), and $p$ observed firm characteristics ($X_{1}$,...,$X_{p}$) over $T$ periods. The return quantile at level $\tau$ of portfolio $i$ in time $t$ is assumed to be the following:
\[
\begin{array}{ccccc}
& F_{R_{i,t}\vert X_{i,t-1};\theta(\tau),\lambda_{i}(\tau),g_{t}(\tau)}^{-1}(\tau)=X_{i,t-1,1}\theta_{1}(\tau)+...+X_{i,t-1,p}\theta_{p}(\tau)+ & \lambda_{i}(\tau) & g_{t}(\tau) & \\
& & \left(1\times r_{\tau}\right) & \left(r_{\tau}\times1\right)
\end{array}
\]
where $X_{i,t-1,k}$, e.g. $k=1$ or $k=p$, is the $k$-th characteristic (e.g. the
book-to-market ratio) of asset $i$ in time $t-1$. The
coefficient $\theta_k$ captures the extent to which assets
with higher/lower characteristic $X_{i,t,k}$ delivers higher average
return. The term $g_{t}$ contains the $r_{\tau}$ latent factors in period
$t$ which captures systematic risks in the market, and $\lambda_{i}$ contains portfolio
$i$'s loading on these factors (i.e. exposure to risk).
There is a discussion in academic research on ``factor versus characteristics'' in late 1990s and early 2000s. The factor/risk based view argues that an asset has higher expected returns because of its exposure to risk factors (e.g. Fama-French 3 factors) which represent some unobserved systematic risk. An asset's exposure to risk factors are measured by factor loadings. The characteristics view claims that stocks have higher expected returns simply because they have certain characteristics (e.g. higher book-to-market ratios, smaller market capitalization), which might be independent of systematic risk (\cite{daniel1997evidence,daniel1998characteristics}). The formulation of our model accommodates both the factor view and the characteristics view. The sparse part is similar to \cite{daniel1997evidence,daniel1998characteristics}, in which stock return are explained by firm characteristics. The dense part assumes a low-dimensional latent factor structure where the common variations in stock returns are driven by several ``risk factors''.
\subsubsection*{Empirical Results}
We first get the estimates $\hat{\theta}(\tau)$ and $\hat{\Pi}(\tau)$ at three different quantiles, $\tau = \{0.1, 0.5, 0.9\}$ using our proposed ADMM algorithm. We then decompose $\hat{\Pi}(\tau)$ into the products of its $\hat{r}_\tau$ principal components $\hat{g}(\tau)$ and their loadings $\hat{\lambda}(\tau)$ via eq(\ref{eqn:svd}).
The $(i,k)$-th element of $\hat{\lambda}(\tau)$, denoted as $\hat{\lambda}_{i,k}(\tau)$, can be interpreted as the exposure of asset $i$ to the $k$-th latent factor (or in finance terminology, ``quantity of risk''). And the $(t,k)$-th elements of $\hat{g}(\tau)$, denoted as $\hat{g}_{t,k}(\tau)$, can be interpreted as the compensation of the risk exposure to the $k$-th latent factor in time period $t$ (or in finance terminology, ``price of risk''). The model are estimated with different tuning parameters $ \nu_{1}$ and $ \nu_{2}$, and use our proposed BIC to select the optimal tuning parameters. The details of the information criteria can be found in equation (\ref{eqn:score}).
The tuning parameter $ \nu_{1}$ governs the sparsity of the coefficient vector $\theta$. The larger $ \nu_{1}$ is, the larger the shrinkage effect on $\theta$. Figure \ref{Figure-solution-pas} illustrate the effect of this shrinkage. With $\nu_2$ fixed, as the value of $ \nu_{1}$ increases, more coefficients in the estimated $\theta$ vector shrink to zero. From a statistical point of view, the ``effective characteristics'' that
can explain stock returns are those with non-zero coefficient $\theta$ at relatively large values of $ \nu_{1}$.
Table \ref{Table-estimated-rank} reports the relationship
between tuning parameter $ \nu_{2}$ and rank of estimated $\Pi$
at different quantiles. It shows that the tuning parameter $ \nu_{2}$ governs the rank of matrix $\Pi$, and that as $ \nu_{2}$ increases, we penalize
more on the rank of matrix $\Pi$ through its nuclear norm.
\begin{table}[!ht]\centering
\begin{threeparttable}
\caption{The estimated rank of $\Pi$.}\label{Table-estimated-rank}
\begin{tabular}{@{\extracolsep{8pt}} rrrr}
\hline\hline
\multicolumn{1}{l}{$\log_{10}( \nu_{2})$} & \multicolumn{1}{l}{$\tau=0.1$} & \multicolumn{1}{l}{$\tau =0.5$} & \multicolumn{1}{l}{$\tau=0.9$}\tabularnewline
\hline
-6.0 & 228 & 228 & 228 \tabularnewline
-5.5 & 228 & 228 & 228 \tabularnewline
-5.0 & 228 & 228 & 228 \tabularnewline
-4.5 & 164 & 228 & 168 \tabularnewline
-4.0 & 1 & 7 & 2 \tabularnewline
-3.5 & 1 & 1 & 1 \tabularnewline
-3.0 & 0 & 0 & 0 \tabularnewline
\hline \hline \\[-1.8ex]
\end{tabular}
\begin{tablenotes}
\small
\item Note: Estimated under different values of turning parameter $ \nu_{2}$, when $ \nu_{1}=10^{-5}$ is fixed. The results are reported for quantiles 10\%, 50\% and 90\%.
\end{tablenotes}
\end{threeparttable}
\end{table}
The left panel of Table \ref{Figure-sparse-beta} reports the estimated coefficients in the sparse part when we fix the tuning parameters at $\log_{10}( \nu_{1})=-3.5$ and $\log_{10}( \nu_{2})=-4$. The signs of some characteristics are the same across the quantiles, e.g. size (mve), book-to-market (bm), momentum (mom1m, mom12m), accurals (acc), book equity growth (egr), leverage (lev), and standardized unexpected earnings (sue). However, some characteristics have heterogenous effects on future returns at different quantiles. For example, at the 10\% quantile, high beta stocks have high future returns, which is consistent with results found via the CAPM; while at $50\%$ and 90\% quantile, high beta stocks have low future returns, which conforms the ``low beta anomaly'' phenomenon. Volatility (measured by both range and idiosyncratic volatility) is positively correlated with future returns at 90\% quantile, but negatively correlated with future returns at 10\% and 50\% percentile. The result suggests that quantile models can capture a wider picture of the heterogenous relationship between asset returns and firm characteristics at different parts of the distribution (\cite{koenker2000galton}).
\begin{table}\centering
\begin{threeparttable}
\caption{Sparse Part Coefficients at Different Quantiles.}\label{Figure-sparse-beta}
\begin{tabular} {@{\extracolsep{8pt}} lrrrrrr}
\\[-1.8ex]\hline
\hline \\[-1.8ex]
& \multicolumn{3}{c}{Fixed $ \nu_{1}$ and $ \nu_{2}$} & \multicolumn{3}{c}{Optimal $ \nu_{1}$ and $ \nu_{2}$ (BIC)}\tabularnewline
\cline{2-4} \cline{5-7}
& $\tau = 0.1$ & $\tau = 0.5$ & $\tau = 0.9$ & $\tau = 0.1$ &$ \tau = 0.5$ & $\tau = 0.9$\tabularnewline
\hline \\[-1.8ex]
acc & -0.089 & -0.074 & -0.041 & 0 & 0 & 0 \tabularnewline
range & -2.574 & -0.481 & 2.526 & -2.372 & -0.356 & 2.429 \tabularnewline
beta & 0.174 & -0.116 & -0.406 & 0 & 0 & -0.115 \tabularnewline
bm & 0.371 & 0.175 & 0.263 & 0 & 0 & 0.168 \tabularnewline
chinv & 0 & 0 & -0.152 & 0 & 0 & 0 \tabularnewline
dy & -0.086 & 0 & 0.119 & 0 & 0 & 0 \tabularnewline
egr & -0.106 & -0.053 & -0.091 & 0 & 0 & 0 \tabularnewline
ep & 0.199 & 0.057 & -0.479 & 0 & 0 & -0.391 \tabularnewline
gma & 0 & 0.091 & 0.201 & 0 & 0 & 0 \tabularnewline
idiovol & -1.229 & -0.071 & 1.438 & -1.055 & 0 & 1.286 \tabularnewline
ill & -0.334 & -0.218 & 0 & 0 & 0 & 0 \tabularnewline
invest & -0.097 & 0 & 0.146 & 0 & 0 & 0 \tabularnewline
lev & 0.183 & 0.063 & 0.129 & 0 & 0 & 0 \tabularnewline
lgr & -0.106 & -0.037 & 0 & 0 & 0 & 0 \tabularnewline
mom12m & -0.166 & -0.077 & -0.117 & 0 & 0 & 0 \tabularnewline
mom1m & -0.150 & -0.384 & -0.571 & 0 & -0.286 & -0.477 \tabularnewline
mve & -0.038 & -0.093 & -0.811 & 0 & 0 & -0.667 \tabularnewline
operprof & 0 & 0.025 & 0.088 & 0 & 0 & 0 \tabularnewline
roaq & 0.221 & 0.242 & -0.147 & 0 & 0 & 0 \tabularnewline
roeq & 0.073 & 0.041 & 0 & 0 & 0 & 0 \tabularnewline
std\_dolvol & 0 & 0 & -0.039 & 0 & 0 & 0 \tabularnewline
std\_turn & 0.310 & 0 & -0.247 & 0 & 0 & 0 \tabularnewline
sue & 0.105 & 0.061 & 0.045 & 0 & 0 & 0 \tabularnewline
turn & -0.796 & -0.083 & 0.386 & -0.330 & 0 & 0 \tabularnewline
\hline
\hline \\[-1.8ex]
\end{tabular}
\begin{tablenotes}
\small
\item Note: The left panel reports the estimated coefficient vector $\theta$ in the sparse part for quantiles 10\%, 50\% and 90\%, when the tuning
parameters are fixed at $\log_{10}( \nu_{1})=-3.5$, $\log_{10}( \nu_{2})=-4$.
The right panel reports the estimated coefficient vector $\theta$
under the when the turning parameters are optimal, as selected by
BIC (indicated in Table \ref{Figure-optimal-hyperparam}).
\end{tablenotes}
\end{threeparttable}
\end{table}
Table \ref{Figure-optimal-hyperparam} reports the selected optimal tuning parameters $ \nu_{1}$ and $ \nu_{2}$ for different quantiles. The tuning parameters
are selected via BIC based on (\ref{eqn:score}) as discussed in Section \ref{sec:Simulation}. For every $ \nu_{1}$
and $ \nu_{2}$, we get the estimates $\widetilde{\theta}( \nu_{1}, \nu_{2})$
and $\widetilde{\Pi}( \nu_{1}, \nu_{2})$ and the number
of factors $r=\text{rank}(\widetilde{\Pi}( \nu_{1}, \nu_{2}))$.
The $\theta$ vector is sparse with non-zero coefficients on selected
characteristics. The 10\% quantile of returns has only 1 latent factor,
and 3 selected characteristics. The median of returns has 7 latent
factors and 2 selected characteristics. The 90\% quantile of returns
has 2 latent factors and 7 selected characteristics.
Range is the only characteristic selected across all 3 quantiles.
Idiosyncratic volatility is selected at 10\% and 90\% quantiles, with
opposite signs. 1-month momentum is selected at 50\% and 90\% percentiles,
with negative sign suggesting reversal in returns.
\begin{table}[!h]
\begin{threeparttable}
\caption{Selected Optimal Tuning Parameters and Number of Factors}\label{Figure-optimal-hyperparam}
\begin{centering}
\begin{tabular}{@{\extracolsep{12pt}} lccc}
\\[-1.8ex]\hline
\hline \\[-1.8ex]
& \multicolumn{1}{l}{$\tau=0.1$} & \multicolumn{1}{l}{$\tau=0.5$} & \multicolumn{1}{l}{$\tau=0.9$}\tabularnewline
optimal $r$ & 1 & 7 & 2 \tabularnewline
optimal $ \nu_{1}$ & $10^{-2.5}$ & $10^{-2.5}$ & $10^{-2.75}$\tabularnewline
optimal $ \nu_{2}$ & $10^{-4}$ & $10^{-4}$ & $10^{-4}$ \tabularnewline
\hline \hline \\[-1.8ex]
\end{tabular}
\par\end{centering}
\begin{tablenotes}
\small
\item Note: This table reports the selected optimal tuning parameter $ \nu_{1}$
and $ \nu_{2}$ that minimize the objective function in equation
(\ref{eqn:score}) for different quantiles.
\end{tablenotes}
\end{threeparttable}
\end{table}
Overall, the empirical evidence suggests that both firm characteristics and latent risk factors have valuable information in explaining stock returns. In addition, we find that the selected characteristics and number of latent factors differ across the quantiles.
\subsubsection*{Interpretation of Latent Factors}
Table \ref{Table-variance-pi} below reports the variance in the matrix $\Pi$ explained by each
Principal Component (PC) or latent factor. At upper and lower quantiles, the first PC dominates. At the median there are more latent factors accounting
for the variations in $\Pi$, with second PC explaining 13.8\% and
third PC explaining 6.8\%.
\begin{table}[!h]\centering
\begin{small}
\begin{threeparttable}
\caption{Percentage of $\Pi$ explained by PC}\label{Table-variance-pi}
\begin{tabular}{@{\extracolsep{8pt}} cccc}
\\[-1.8ex]\hline
\hline \\[-1.8ex]
& \multicolumn{1}{l}{$\tau=0.1$} & \multicolumn{1}{l}{$\tau=0.5$} & \multicolumn{1}{l}{$\tau=0.9$}\tabularnewline
PC1 & 100.00\% & 73.82\% & 99.68\% \tabularnewline
PC2 & & 13.71\% & 0.32\% \tabularnewline
PC3 & & 6.78\% & \tabularnewline
PC4 & & 4.12\% & \tabularnewline
PC5 & & 1.11\% & \tabularnewline
PC6 & & 0.45\% & \tabularnewline
PC7 & & 0.01\% & \tabularnewline
Total & 100.00\% & 100.00\% & 100.00\% \tabularnewline
\hline \hline \\[-1.8ex]
\end{tabular}
\begin{tablenotes}
\small
\item Note: Variance of matrix $\Pi$ explained by each principal
component for different quantiles.
\end{tablenotes}
\end{threeparttable}
\end{small}
\end{table}
We also found the first PC captures the market returns in all three quantiles:
Figure \ref{Figure-PC-against-ret} plots the first principal component against the monthly returns
of S\&P500 index, showing that they have strong positive correlations.
\begin{figure}[!h]
\caption{The S\&P 500 Index Return and the First PC at Different Quantiles.
This figure plots the first PC of matrix $\Pi$ against S\&P500 index monthly return for quantiles 10\% (left), 50\% (middle), and 90\% (right).}\label{Figure-PC-against-ret}
\includegraphics[width=5.5cm,height=4.5cm]{PC1_u10}\includegraphics[width=5.5cm,height=4.5cm]{PC1_u50}\includegraphics[width=4cm,height=4.5cm]{PC1_u90}
\end{figure}
\section*{Acknowledgements}
We would like to thank the Editors, the Associate Editors and two anonymous referees for their detailed reviews, which helped to improve the paper substantially. We are also grateful to Victor Chernozhukov, Iv\'{a}n Fern\'{a}ndez-Val, Bryan Graham, Hiroaki Kaido, Anna Mikusheva, Whitney Newey, Eric Renault, Jeremy Smith, and Vasilis Syrgkanis for helpful discussions.
\bibliographystyle{imsart-nameyear}
\bibliography{QuantileFactor}
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\title{Supplementary Material for \\``High Dimensional Latent Panel Quantile Regression with an Application to Asset Pricing''}
\begin{center}
Alexandre Belloni, Mingli Chen, Oscar Hernan Madrid Padilla, Zixuan (Kevin) Wang
\end{center}
\vspace{0.5cm}
\section{Implementation Details of the Proposed ADMM Algorithm} \label{sec:admm}
Denoting by $P_{+}(\cdot)$ and $P_{-}(\cdot)$ the element-wise positive and negative part operators, the ADMM proceeds doing the iterative updates
\begin{align}
\label{eqn:iter1}
& V^{(k+1)}\,\leftarrow\,P_{+}\left(W^{(k)}-U_{V}^{(k)}-\frac{\tau}{nT\eta}\boldsymbol{1}\boldsymbol{1}^{\prime}\right)+P_{-}\left(W^{(k)}-U_{V}^{(k)}-\frac{\tau}{nT\eta}\boldsymbol{1}\boldsymbol{1}^{\prime}\right)\\
\label{eqn:iter2}
& \tilde{\theta}^{(k+1)}\,\leftarrow\, \underset{\theta}{\arg\min} \left\{ \frac{\eta}{2}\sum_{i=1}^{n}\sum_{t=1}^{T}\left(W_{i,t}^{(k)}-Y_{i,t}+X_{i,t}^{\prime}\theta+(Z_{\Pi}^{(k)})_{i,t}+(U_{W}^{(k)})_{i,t}\right)^{2}+\frac{\eta}{2}\|Z_{\theta}^{(k)}-\theta+U_{\theta}^{(k)}\|^{2}\right\} \\
\label{eqn:iter3}
& \tilde{\Pi}^{(k+1)}\,\leftarrow\,\underset{ \tilde{ \Pi} }{\arg\min}\left\{ \frac{1}{2}\|Z_{\Pi}^{(k)}-\tilde{\Pi}+U_{\Pi}^{(k)}\|_{F}^{2}+ \frac{ \nu_{2}}{\eta} \|\tilde{\Pi}\|_{*}\right\} \\
& Z_{\theta}^{(k+1)}\,\leftarrow\, \underset{Z_{\theta} }{\arg\min} \left\{ \frac{1}{2}\|\tilde{\theta}^{(k+1)}-U_{\theta}^{(k)}-Z_{\theta}\|^{2}+\frac{ \nu_{1}}{\eta}\sum_{j=1}^{p}w_{j}\vert (Z_{\theta})_j \vert\right\} \\
& (Z_{\Pi}^{(k+1)},W^{(k+1)})\,\leftarrow\, \underset{Z_{\Pi},W}{\arg\min} \Bigg\{\frac{\eta}{2}\|W-Y+X\tilde{\theta}^{(k+1)}+Z_{\Pi}+U_{W}^{(k)}\|_{F}^{2}+\frac{\eta}{2}\|V^{(k+1)}-W+U_{V}^{(k)}\|_{F}^{2} \\
\label{eqn:iter6} &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,+\frac{\eta}{2}\|Z_{\Pi}-\tilde{\Pi}^{(k+1)}+U_{\Pi}^{(k)}\|_{F}^{2}\Bigg\}
\end{align}
\begin{align*}
U_{ V }^{(k+1)} \,\leftarrow\,V^{(k+1)}- W^{(k+1)}+ U_V^{(k)},\,\,\,\,\,U_W^{(k+1)} \,\leftarrow\,W^{(k+1)}- Y+ X\tilde{\theta}^{(k+1)} + Z_{\Pi}^{(k+1)} +U_W^{(k)},\,\,\,\,\,\\
U_{\Pi}^{(k+1)} \,\leftarrow\,Z_{\Pi}^{(k+1)} - \tilde{ \Pi}^{(k+1)} + U_{\Pi }^{(k)},\,\,\,\,U_{\theta}^{(k+1)} \,\leftarrow\, Z_{\theta}^{(k+1)}
- \tilde{\theta}^{(k+1)} +U_{\theta}^{(k)},
\end{align*}
where $\eta>0$ is the penalty, see \cite{boyd2011distributed}.
The update for $\tilde{\theta}$ is
\[
\displaystyle \tilde{\theta}^{(k+1)} \,\leftarrow \, \left[ \sum_{i=1}^n\sum_{t=1}^T X_{i,t} X_{i,t}^{\prime} +I_p \right]^{-1} \left[ - \sum_{ i= 1}^n \sum_{t=1}^T X_{i,t}A_{i,t} +Z_{\theta}^{(k)} + U_{\theta}^{(k)} \right],
\]
where
\[
A := W^{(k)}+ Z_{\Pi}^{(k)} + U_W^{(k)} - Y.
\]
The update for $\tilde{\Pi}$ is
\[
\tilde{\Pi}^{(k+1)} \,\leftarrow\, P \text{ diag}\left( \max\left\{ 0, v_j - \frac{ \nu_2}{\eta} \right\}_{ 1\leq j \leq l} \right) Q^{\prime},
\]
where
\[
Z_{\Pi}^{(k)} + U_{ \Pi }^{(k)} \,=\, P \text{ diag}( \{ v_j \}_{1\leq j \leq l} ) Q^{\prime}.
\]
Furthermore, for $Z_{\theta}$,
\[
Z_{\theta,j}^{(k+1)} \,\leftarrow \, \text{sign}(\tilde{\theta}_j^{(k+1)} - U_{\theta,j}^{(k)} ) \left[ \vert \tilde{\theta}_j^{(k+1)} - U_{\theta,j}^{(k)} \vert - \frac{ \nu_{1} w_j }{\eta} \right].
\]
Finally, defining
\[
\tilde{A} \,=\, - Y + X\tilde{\theta}^{(k+1)} + U_W^{(k)}, \,\,\,\, \tilde{B} \,=\,-V^{(k+1)}-U_V^{(k)},\,\,\,\, \tilde{C} \,=\, -\tilde{ \Pi}^{(k+1)} + U_{\Pi}^{(k)},
\]
the remaining updates are
\[
Z_{\Pi}^{(k+1)} \,\leftarrow\, \frac{ -\tilde{A} - 2\tilde{C} + \tilde{B} }{3},
\]
and
\[
W^{(k+1)} \,\leftarrow\, -\tilde{A} -\tilde{C} - 2Z_{\Pi}^{(k+1)}.
\]
\subsection{Estimation without Covariates}
\label{sec:no_covariates}
Note, when there are no covariates, our proposed ADMM can be simplified. In this case, we face the following problem
\begin{equation}
\label{eqn:unsupervised}
\displaystyle \underset{ \tilde{\Pi} \in \mathbb{R}^{ n \times T } }{\min }\,\,\left\{ \frac{1}{n T} \sum_{i=1}^{n} \sum_{j=1}^{T} \rho_{\tau}( Y_{i,t} - \tilde{ \Pi}_{i,t} ) + \nu_2 \|\tilde{ \Pi}\|_* \right\}.
\end{equation}
This can be thought as a convex relaxation of the estimator studied in \cite{chen2018quantile}. Problem (\ref{eqn:unsupervised}) is also related to the setting of robust estimation of a latent low-rank matrix, e.g. \cite{elsener2018robust}. However, our approach can also be used to estimate different quantile levels. As for solving (\ref{eqn:unsupervised}), we can proceed by doing the iterative updates
\begin{equation}
\label{eqn:update1}
\displaystyle \tilde{\Pi}^{(k+1)} \,\leftarrow\, \underset{ \tilde{ \Pi} }{\arg \min}\,\left\{ \frac{1}{nT}\sum_{i=1}^n\sum_{t=1}^{T} \rho_{\tau}( Y_{i,t} - \tilde{ \Pi}_{i,t} ) \,+\,\frac{\eta}{2}\| \tilde{ \Pi} - Z_{\Pi}^{(k)} + U_{ \Pi }^{(k)} \|_F^2 \right\},
\end{equation}
\begin{equation}
\label{eqn:update2}
Z_{\Pi}^{(k+1)} \,\leftarrow \, \underset{ Z_{\Pi} }{\arg \min}\,\left\{ \frac{\eta}{2} \| \tilde{\Pi}^{(k+1)} - Z_{\Pi} + U_{\Pi}^{(k)} \|_F^2 + \nu_2\|Z_{\Pi}\|_* \right\},
\end{equation}
and
\begin{equation}
\label{eqn:update3}
U_{\Pi}^{(k+1)} \,\leftarrow\, \Pi^{(k+1)} - Z_{\Pi}^{(k+1)} + U_{\Pi}^{(k)},
\end{equation}
where $\eta> 0 $ is the penalty parameter (\cite{boyd2011distributed}). The minimization in (\ref{eqn:update1}) is similar to (\ref{eqn:update_v}), whereas (\ref{eqn:update2}) can be done similarly as in (\ref{eqn:update_pi}).
\subsection{Estimation in unbalanced designs}\label{sec:admm2}
We now explore the setting of unbalanced designs, specifically, instead of fully observing $(X,Y)$, we now assume that we only observe $\{ (X_{i,t},Y_{i,t}) \}_{(i,t) \in \mathcal{I}}$ for a set $\mathcal{I}\subset [n] \times [T]$. For instance, if $n=2$ and $T=3$ but for $i=1$ the data at time $t=2$ is not available, then $\mathcal{I}$ would be $\{ (1,1),(1,3),(2,1),(2,2),(2,3)\}$.
For this setting, inspired by (\ref{eqn:formulation2}), we formulate the problem
\begin{equation}
\label{eqn:formulation4}
\underset{ \tilde{\theta}\in \mathbb{R}^{p } ,\,\ \tilde{\Pi}\in \mathbb{R}^{n \times T} }{\min} \left\{\frac{1}{ \vert \mathcal{I}\vert } \sum_{(i,t)\in \mathcal{I} } \rho_{\tau}(Y_{i,t} - X_{i,t}^{\prime}\tilde{\theta} - \tilde{\Pi}_{i,t} ) + \nu_{1}\sum_{j=1}^{p} w_j \vert \tilde{\theta}_j \vert + \nu_2 \|\tilde{\Pi}\|_*\right\}
\end{equation}
where $ \nu_{1} >0$ and $\nu_2 >0$ are tuning parameters, and $w_1,\ldots,w_p$ are user specified weights. Thus, comparing with (\ref{eqn:formulation2}), we now only apply the loss function to the indices for which there is data available. Following (\ref{eqn:formulation3}), we write (\ref{eqn:formulation4}) as
\begin{equation}
\label{eqn:formulation6}
\begin{array}{lll}
\underset{ \stackrel{\tilde{\theta} , \tilde{\Pi},V }{Z_{\theta},Z_{\Pi },W } }{\min} & \displaystyle \frac{1}{ \vert \mathcal{I}\vert } \sum_{(i,t)\in \mathcal{I} }\rho_{\tau}(V_{i,t}) \,+\, \nu_{1} \sum_{j=1}^{p} w_j \vert Z_{\theta_j} \vert \,+\, \nu_2 \| \tilde{\Pi} \|_* \\
\text{subject to} & V = W,\,\,\,\,\, W= Y- X\tilde{\theta} - Z_{\Pi },\\
& \,\,\,\,\, Z_{\Pi } - \tilde{\Pi} =0,\,\,\,\,\, Z_{\theta} -\tilde{\theta} =0. \\
\end{array}
\end{equation}
Then, as in Section \ref{sec:admm}, we obtain the ADMM updates given by
\[
V_{i,t}^{(k+1)}\,\leftarrow\,P_{+}\left(W_{i,t}^{(k)}-(U_{V})_{i,t}^{(k)}-\frac{\tau}{\vert \mathcal{I}\vert \eta}\right)+P_{-}\left(W_{i,t}^{(k)}-(U_{V})_{i,t}^{(k)}-\frac{\tau}{ \vert \mathcal{I}\vert \eta}\right)\\
\label{eqn:iter4}
\]
for $(i,t) \in \mathcal{I}$, and
\[
V_{i,t}^{(k+1)}\,\leftarrow\, W_{i,t} - (U_{V})_{i,t}^{(k)}
\]
for $(i,t) \notin \mathcal{I}$, and with the rest of updates given exactly as in Section \ref{sec:admm}.
Notice that our formulation is similar in spirit to \cite{athey2018matrix}. In particular, the objective function (\ref{eqn:formulation4}) resembles Equation (4.3) in \cite{athey2018matrix}, with the main difference that we allow for covariates and work with the quantile loss.
\section{Proof of Theorem \ref{thm:1} }
\subsection{Auxiliary lemmas for proof of Theorem \ref{thm:1} }
\label{sec:proofs}
Throughout, we use the notation
\[
Q_{\tau}(\tilde{\theta},\tilde{\Pi}) \,=\, \mathbb{E}(\hat{Q}_{\tau}(\tilde{\theta},\tilde{\Pi}) ).
\]
Moreover, as in \cite{yu1994rates}, we define the sequence $\{(\tilde{Y}_{i,t}, \tilde{X}_{i,t} ) \}_{i \in [n], t \in [T]}$
such that
\begin{itemize}
\item $\{(\widetilde{Y}_{i,t}, \widetilde{X}_{i,t} ) \}_{i \in [n], t \in [T]}$ is independent of $\{(Y_{i,t},X_{i,t} ) \}_{i \in [n], t \in [T]}$;
\item for a fixed $t$ the random vectors $\{(\widetilde{Y}_{i,t}, \widetilde{X}_{i,t} ) \}_{i \in [n]}$ are independent;
\item for a fixed $i$:
\[
\mathcal{L}( \{ (\widetilde{Y}_{i,t},\widetilde{X}_{i,t}) \}_{ t \in H_l } ) \,=\, \mathcal{L}( \{ (Y_{i,t},X_{i,t}) \}_{ t \in H_l } ) \,=\, \mathcal{L}( \{ (Y_{i,t},X_{i,t}) \}_{ t \in H_1 } ) \,\,\,\,\forall l \,\,\in [d_T],
\]
and the blocks $ \{ (\widetilde{Y}_{i,t},\widetilde{X}_{i,t}) \}_{ t \in H_1 },\ldots, \{ (\widetilde{Y}_{i,t},\widetilde{X}_{i,t}) \}_{ t \in H_{d_T} }$ are independent.
\end{itemize}
Here, we define $ \Lambda \,:=\, \{ H_1,H_1^{\prime},\ldots,H_{d_T},H_{d_T}^{\prime},R \}$ with
\begin{equation}
\label{eqn:intervals}
\begin{array}{lll}
H_j &=& \left\{ t \,:\, 1+ 2(j-1)c_T \leq t \leq (2j-1)c_T \right\},\,\,\, \\
H_j^{\prime} &=& \left\{ t \,:\, 1+ (2j-1)c_T \leq t \leq 2j c_T \right\}, \,\,j = 1,\ldots, d_T,\\
&& \,\,\,\,\text{and}\,\,\, R \,=\,\{ t \,:\, 2c_T d_T +1\,\leq t \leq T \}.
\end{array}
\end{equation}
We also use the symbol $\mathcal{L}(\cdot)$ to denote the distribution of a sequence of random variables.
Next, define the scores $a_{i,t} \,=\, \tau - 1\{ Y_{i,t} \leq X_{i,t}^{\prime} \theta(\tau) + \Pi_{i,t}(\tau) \} $, and $\tilde{a}_{i,t} \,=\, \tau - 1\{ \widetilde{Y}_{i,t} \leq \widetilde{X}_{i,t}^{\prime} \theta(\tau) + \Pi_{i,t}(\tau) \} $.
We start by controlling an empirical process involving the scores $\{a_{i,t}\}$. This is given next.
\begin{lemma}
\label{lem:penalty_tuning}
Under Assumptions \ref{cond1}--\ref{cond3}, we have
\[
\mathbb{P}\left( \underset{j = 1,\ldots, p}{\max } \,\, \frac{1}{n T} \left\vert \sum_{i=1}^n \sum_{t=1}^T \frac{ X_{i,t,j} a_{i,t} }{ \hat{\sigma}_j } \right\vert \,\geq \, 9 \sqrt{ \frac{ c_T \log( \max\{n,p c_T\} ) }{n d_T} } \right) \,\leq \, \frac{16}{ n } + 8npT\left( \frac{1}{c_T} \right)^{\mu} .
\]
\end{lemma}
\begin{proof}
Notice that
\begin{equation}
\label{eqn:s0}
\begin{array}{l}
\displaystyle \mathbb{P}\left( \underset{j = 1,\ldots, p}{\max } \,\, \frac{1}{n T} \left\vert \sum_{i=1}^n \sum_{t=1}^T \frac{ X_{i,t,j} a_{i,t} }{ \hat{\sigma}_j } \right\vert \,\geq \, \eta | X\right) \\
\leq \displaystyle 2p \underset{j = 1,\ldots, p}{\max }\,\mathbb{P}\left( \, \frac{1}{n d_T}\left\vert \sum_{i=1}^n \sum_{l=1}^{d_T} \left( \frac{1}{c_T} \sum_{ t = 2(l-1)+1 }^{ 2(l-1) + c_T } \frac{ X_{i,t,j} a_{it} }{ \hat{\sigma}_j } \right) \right\vert \,\geq \, \frac{\eta}{9} | X \right) \,+\,\\
\displaystyle p \underset{j = 1,\ldots, p}{\max } \, \mathbb{P}\left( \, \, \frac{1}{n d_T}\left\vert \sum_{i=1}^n \frac{1}{c_T} \left(\sum_{t \in R} \frac{ X_{i,t,j} }{\hat{\sigma}_j } \right) \right\vert \,\geq \, \frac{\eta}{9} | X \right)\\
\leq \displaystyle 4p \,\underset{j = 1,\ldots, p}{\max }\,\mathbb{P}\left( \, \underset{m = 1,\ldots, c_T}{\max }\, \frac{1}{n d_T}\left\vert \sum_{i=1}^n \sum_{l=0}^{d_T-1} \frac{ X_{i,\, (2lc_T+ m ) ,\,j} \tilde{a}_{i,\, (2lc_T+ m )} }{ \hat{\sigma}_j } \right\vert \,\geq \, \frac{\eta}{9} | X \right) \,+\,\\
\displaystyle 2p \underset{j = 1,\ldots, p}{\max } \, \mathbb{P}\left( \, \underset{m = 1,\ldots, \vert R\vert }{\max } \, \frac{1}{n d_T}\left\vert \sum_{i=1}^n \frac{ X_{i, \,( 2d_T c_T + m ) \, j} \tilde{a}_{i,\, (2d_T c_T+ m )} }{ \hat{\sigma}_j } \right\vert \,\geq \, \frac{\eta}{9} | X \right) \,+\, 8npT\left( \frac{1}{c_T} \right)^{\mu} \\
\end{array}
\end{equation}
where the first inequality follows from union bound, and the second by Lemmas 4.1 and 4.2 from \cite{yu1994rates}. Hence,
\begin{equation}
\label{eqn:s1}
\begin{array}{l}
\displaystyle \mathbb{P}\left( \underset{j = 1,\ldots, p}{\max } \,\, \frac{1}{n T} \left\vert \sum_{i=1}^n \sum_{t=1}^T \frac{ X_{i,t,j} a_{i,t} }{ \hat{\sigma}_j } \right\vert \,\geq \, \eta | X\right) \\
\leq \displaystyle 4p c_T \,\underset{j \in [p], m \in [c_T]}{\max }\,\mathbb{P}\left( \, \frac{1}{n d_T}\left\vert \sum_{i=1}^n \sum_{l=0}^{d_T-1} \frac{ X_{i,\, (2lc_T+ m ), \,j} \tilde{a}_{i,\, (2lc_T+ m )} }{ \hat{\sigma}_j } \right\vert \,\geq \, \frac{\eta}{9} | X \right) \,+\,\\
\displaystyle 2p c_T \,\underset{j \in [p], m \in [ \vert R \vert ]}{\max }\,\mathbb{P} \left( \, \frac{1}{n d_T}\left\vert \sum_{i=1}^n \frac{ X_{i, \,( 2d_T c_T + m ), \, j} \tilde{a}_{i,\, (2d_Tc_T+ m )} }{ \hat{\sigma}_j } \right\vert \,\geq \, \frac{\eta}{9} | X \right) \,+\, 8npT\left( \frac{1}{c_T} \right)^{\mu} \\
\end{array}
\end{equation}
Therefore, since
\[
\displaystyle \frac{1}{n d_T } \sum_{i=1}^n \sum_{l=0}^{d_T-1} X_{i,\, (2lc_T+ m )\,, j}^2\,\leq \, 3 c_T \hat{\sigma}_j^2,
\]
and with a similar argument for the second term in the last inequality of (\ref{eqn:s1}), we obtain the result by Hoeffding's inequality and integrating over $X$.
\end{proof}
Next we proceed to control the complexity of the set $\{ \Delta \in \mathbb{R}^{ n \times T } \,:\, \| \Delta \|_* \leq 1\,\,\, \}$ in terms of the scores $\{a_{i,t}\}$.
\begin{lemma}
\label{lem:latent_error}
Supposes that Assumptions \ref{cond1}--\ref{cond3} hold, and let
\begin{equation}
\label{eqn:set_g}
\begin{array}{l}
\mathcal{G} \,=\, \Bigg\{ \Delta \in \mathbb{R}^{ n \times T } \,:\, \| \Delta \|_* \leq 1\,\,\, \Bigg\}.
\end{array}
\end{equation}
Then there exists positive constants $c_1$ and $c_2$ such that
\[
\begin{array}{lll}
\displaystyle \underset{ \Delta \in \mathcal{G} }{\sup}\,\, \frac{1}{n T} \left\vert \sum_{i=1}^n \sum_{t=1}^T \Delta_{i,t} a_{i,t} \right\vert &\leq & \displaystyle \frac{100 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right) ,\\
\end{array}
\]
with probability at least
\[
1 \,-\, 2 n T \left( \frac{1}{c_T} \right)^{\mu} \,-\, 2c_1\exp(-c_2 \max\{n,T\} + \log c_T ),
\]
for some positive constants $c_1$ and $c_2$.
\end{lemma}
\begin{proof}
Notice that by Lemma 4.3 from \cite{yu1994rates},
\begin{equation}
\label{eqn:s02}
\begin{array}{l}
\displaystyle \mathbb{P}\left( \underset{ \Delta \in \mathcal{G}}{\sup } \left[ \frac{1}{n T } \left\vert \sum_{i=1}^n \sum_{l=1}^{d_T} \sum_{t \in H_l} \Delta_{i ,t} a_{i,t} \right\vert \,+\, \frac{1}{n T } \left\vert \sum_{i=1}^n \sum_{l=1}^{d_T} \sum_{t \in H_l^{\prime} }\Delta_{i, t } a_{i,t} \right\vert \,+\, \frac{1}{n T }\left\vert \sum_{i=1}^n \sum_{t \in R }\Delta_{i, t } a_{i,t} \right\vert \right] \geq \eta \right) \\
\displaystyle \, \leq \, \mathbb{P}\left( \underset{ \Delta \in \mathcal{G}}{\sup }\, \frac{1}{n T } \left\vert \sum_{i=1}^n \sum_{l=1}^{d_T} \sum_{t \in H_l} \Delta_{i, t} \tilde{a}_{i,t} \right\vert \geq \frac{\eta}{3} \right) \,+\,\mathbb{P}\left( \underset{ \Delta \in \mathcal{G}}{\sup } \, \frac{1}{n T } \left\vert \sum_{i=1}^n \sum_{l=1}^{d_T} \sum_{t \in H_l^{\prime} } \Delta_{i, t^{\prime} } \tilde{a}_{i,t} \right\vert \geq \frac{\eta}{3} \right) \,+\, \\
\displaystyle \mathbb{P}\left( \underset{ \Delta \in \mathcal{G}}{\sup } \,\frac{1}{n T } \left\vert \sum_{i=1}^n \sum_{t \in R} \Delta_{i ,t} \tilde{a}_{i,t} \right\vert \geq \frac{\eta}{3} \right) \,+\, 2 n T \left( \frac{1}{c_T} \right)^{\mu}\\
\end{array}
\end{equation}
And so
\begin{equation}
\label{eqn:s2}
\begin{array}{l}
\displaystyle \mathbb{P}\left( \underset{ \Delta \in \mathcal{G}}{\sup } \left[ \frac{1}{n T } \left\vert \sum_{i=1}^n \sum_{l=1}^{d_T} \sum_{t \in H_l} \Delta_{i ,t} a_{i,t} \right\vert \,+\, \frac{1}{n T } \left\vert \sum_{i=1}^n \sum_{l=1}^{d_T} \sum_{t \in H_l^{\prime} }\Delta_{i, t } a_{i,t} \right\vert \,+\, \frac{1}{n T }\left\vert \sum_{i=1}^n \sum_{t \in R }\Delta_{i, t } a_{i,t} \right\vert \right] \geq \eta \right) \\
\leq \displaystyle 2 c_T \underset{m \in [c_T] }{\max } \mathbb{P}\left( \underset{ \Delta \in \mathcal{G}}{\sup }\, \frac{1}{n d_T } \left\vert \sum_{ i= 1}^n \sum_{l=0 }^{d_T-1} \Delta_{i ,\, ( 2c_T l + m ) } \tilde{a}_{i, \, ( 2c_T l + m )} \right \vert \,\geq \,\frac{\eta}{9} \right) \,+\,\\
\displaystyle \,\, c_T \underset{m \in [\vert R \vert ] }{\max } \mathbb{P}\left( \underset{ \Delta \in \mathcal{G}}{\sup }\, \frac{1}{n d_T } \left\vert \sum_{ i= 1}^n \Delta_{i, \, ( 2c_T d_T + m ) } \tilde{a}_{i, \, ( 2c_T d_T + m )} \right \vert \,\geq \,\frac{\eta}{9} \right)\,+\, 2 n T \left( \frac{1}{c_T} \right)^{\mu}.\\
\end{array}
\end{equation}
We now proceed to bound each of the terms in the upper bound of (\ref{eqn:s2}). For the first term, notice that for a fixed $m$
\begin{equation}
\label{eqn:s3}
\begin{array}{lll}
\displaystyle \underset{ \Delta \in \mathcal{G}}{\sup } \,\, \frac{1}{n d_T } \left\vert \sum_{ i= 1}^n \sum_{l=0 }^{d_T-1} \Delta_{i, \, ( 2c_T l + m ) } \tilde{a}_{i, \, ( 2c_T l + m )} \right\vert & \leq& \displaystyle \underset{ \Delta \in \mathcal{G}}{\sup }\,\, \frac{1}{n d_T } \left\| \left\{ \tilde{a}_{i ,\, ( 2c_T l + m )} \right\}_{ i \in [n], l \in [d_T-1] } \right \|_2 \left\| \Delta \right\|_*\\
& \leq & \displaystyle\frac{3 }{n d_T } \left( \sqrt{n} + \sqrt{d_T} \right),
\end{array}
\end{equation}
where the first inequality holds by the duality between the nuclear norm and spectral norm, and the second inequality happens with probability at least $1-c_1 \exp\left( - c_2 \max\{ n,d_T \} \right)$ by Theorem 3.4 from \cite{chatterjee2015matrix}.
On the other hand,
\begin{equation}
\label{eqn:s5}
\begin{array}{lll}
\displaystyle \underset{ \Delta \in \mathcal{G}}{\sup } \, \frac{1}{n d_T } \left\vert \sum_{ i= 1}^n \Delta_{i, \, ( 2c_T d_T + m ) } \tilde{a}_{i ,\, ( 2c_T d_T + m )} \right \vert
& \leq & \displaystyle \underset{ \Delta \in \mathcal{G}}{\sup } \,\frac{ \sqrt{n} \| \{ \Delta_{i ,\, ( 2c_T d_T + m ) } \}_{i\in [n]} \| }{n d_T } \\
& \leq & \displaystyle\frac{ \sqrt{n} \| \Delta \|_* }{n d_T }. \\
\end{array}
\end{equation}
The claim follows by combining (\ref{eqn:s2}), (\ref{eqn:s3}), and (\ref{eqn:s5}), taking $\eta\,=\,30( \sqrt{n }+ \sqrt{d_T} )/\sqrt{n d_T }$, and the fact that $c_T/T \leq 1/3$.
\end{proof}
We will proceed to exploit Lemmas \ref{lem:penalty_tuning} and \ref{lem:latent_error} to show that $(\hat{\beta}(\tau) -\beta(\tau), \hat{\Pi}(\tau) -\Pi(\tau) )$ belongs to the restricted set with probability approaching one. Before that, we recall an important property relating the nuclear norm to the rank of a matrix.
\begin{lemma}
\label{lem:nuclear_norm}
For every $\tilde{\Pi}, \check{\Pi} \in \mathbb{R}^{n \times T}$, we have that
\[
\| \check{\Pi} - \tilde{\Pi}\|_* + \| \check{\Pi} \|_* - \| \tilde{\Pi} \|_* \,\leq \, (6\sqrt{ \mathrm{rank}(\check{\Pi}) } +1)\| \check{\Pi} - \tilde{\Pi} \|_F
\]
\end{lemma}
\begin{proof}
This follows directly from Lemma 2.3 in \cite{elsener2018robust}.
\end{proof}
\begin{lemma}
\label{lem1}Assume that \ref{cond1}--\ref{cond3} hold. Then, with probability approaching one,
\begin{equation}
\label{lem1:eq1}
\frac{3}{4}\|\theta \|_1 \,\leq \, \|\theta\|_{1,n,T} \,\leq \, \frac{5}{4}\|\theta \|_1,
\end{equation}
for all $\theta \in \mathbb{R}^p$.
Moreover, for $c_0 \in (0,1)$ letting
$$
\nu_{1} \,=\,\frac{9}{1-c_0} \sqrt{ \frac{ c_T \log( \max\{n,pc_T\} ) }{ n d_T} } ( \sqrt{n} + \sqrt{d_T} ) ,
$$
and
$$\nu_2 \,=\, \frac{200 c_T}{n T}\left( \sqrt{n} + \sqrt{d_T} \right),$$
we have that
\[
( \hat{\theta}(\tau) - \theta(\tau), \hat{\Pi}(\tau) -\Pi(\tau) ) \in A_{\tau},
\]
with probability approaching one, where
\[
\begin{array}{l}
A_{\tau} = \Bigg\{ (\delta, \Delta ) \,:\, \|\delta_{ T_{\tau}^c }\|_1 + \frac{ \| \Delta \|_* }{\sqrt{nT} \sqrt{ \log( \max\{n,p c_T\} )} } \leq C_0 \left( \|\delta_{T_{\tau}}\|_1 + \frac{ \sqrt{r_{\tau}}\| \Delta\|_F }{\sqrt{nT} \sqrt{ \log( \max\{n,p c_T\} )} } \right) \Bigg\},\\
\end{array}
\]
and $C_0$ is a positive constant that depends on $\tau$ and $c_0$.
\end{lemma}
\begin{proof}
We notice that
\begin{equation}
\label{eqn:e1}
\begin{array}{lll}
0 & \leq & \displaystyle \hat{Q}(\theta(\tau),\Pi(\tau)) \,-\, \hat{Q}(\hat{\theta}(\tau),\hat{\Pi}(\tau)) \,+\, \nu_{1}\left(\|\theta(\tau)\|_{1,n} - \|\hat{\theta}(\tau)\|_{1,n,T} \right) \,+\, \nu_2 ( \| \Pi(\tau) \|_* - \| \hat{\Pi}(\tau) \|_* ) \\
& \leq & \displaystyle \underset{1 \leq j \leq p}{\max}\left \vert \frac{1}{nT} \sum_{i=1}^{n} \sum_{t=1}^T \frac{X_{i,t,j} a_{i,t} }{\hat{\sigma}_j } \right\vert \left[ \sum_{k=1}^{p}\hat{\sigma}_k\vert \theta_k(\tau) - \hat{\theta}_k(\tau) \vert \right] \,+\, \nu_{1}\left(\|\theta(\tau)\|_{1,n,T} - \|\hat{\theta}(\tau)\|_{1,n,T} \right) \,+\,\\
& & \displaystyle \left\vert \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^{T} a_{i,t} (\Pi_{i,t}(\tau)- \hat{\Pi}_{i,t}(\tau)) \right\vert \,+\, \nu_2 ( \| \Pi(\tau) \|_* - \| \hat{\Pi}(\tau) \|_* ) \\
& \leq &\displaystyle 9 \sqrt{ \frac{ c_T \log( \max\{n,p c_T\} ) }{n d_T} } \left[ \sum_{k=1}^{p}\hat{\sigma}_k\vert \theta_k(\tau) - \hat{\theta}_k(\tau) \vert \right]\,+\, \nu_{1} \left(\|\theta(\tau)\|_{1,n,T} - \|\hat{\theta}(\tau)\|_{1,n,T} \right) \\
& &\displaystyle \,+\, \| \Pi(\tau) - \hat{\Pi}(\tau) \|_{*} \left( \underset{ \| \tilde{\Delta} \|_* \leq 1 }{\sup}\, \left\vert \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^{T} a_{i,t} \tilde{\Delta}_{i,t} \right\vert \right) + \nu_2 ( \| \Pi(\tau) \|_* - \| \hat{\Pi}(\tau) \|_* ) \\
& \leq &\displaystyle 9 \sqrt{ \frac{ c_T \log( \max\{n,p c_T\} ) }{n d_T} } \left[ \sum_{k=1}^{p}\hat{\sigma}_k\vert \theta_k(\tau) - \hat{\theta}_k(\tau) \vert \right]\,+\, \nu_{1} \left(\|\theta(\tau)\|_{1,n,T} - \|\hat{\theta}(\tau)\|_{1,n,T} \right) \\
& &\displaystyle \,+\, \frac{200 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right)\| \Pi(\tau) - \hat{\Pi}(\tau) \|_* + \frac{200 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right)\left( \| \Pi(\tau) \|_* - \| \hat{\Pi}(\tau) \|_* \right),\\
& & \displaystyle \,-\, \,\, \frac{100 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right)\| \Pi(\tau) - \hat{\Pi}(\tau) \|_*\\
& \leq& \displaystyle 9 \sqrt{ \frac{ c_T \log( \max\{n,p c_T\} ) }{n d_T} } \left[ \sum_{k=1}^{p}\hat{\sigma}_k\vert \theta_k(\tau) - \hat{\theta}_k(\tau) \vert \right]\,+\, \nu_{1} \left(\|\theta(\tau)\|_{1,n,T} - \|\hat{\theta}(\tau)\|_{1,n,T} \right) \\
& &\displaystyle \,+\, \frac{1200 c_T \sqrt{r_{\tau}} + 200c_T}{n T } \left( \sqrt{n} + \sqrt{d_T} \right)\| \Pi(\tau) - \hat{\Pi}(\tau) \|_F\\% + \frac{200 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right)\left( \| \Pi(\tau) \|_* - \| \hat{\Pi}(\tau) \|_* \right),\\
& & \displaystyle \,-\, \frac{100 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right)\| \Pi(\tau) - \hat{\Pi}(\tau) \|_*\\
\end{array}
\end{equation}
with probability at least
\[
1 - \gamma - \frac{16}{ n } - 8npT\left( \frac{1}{c_T} \right)^{\mu}- 2 n T \left( \frac{1}{c_T} \right)^{\mu} -2c_1\exp(-c_2 \max\{n,T\} + \log c_T ),
\]
where in (\ref{eqn:e1}) the first inequality follows from optimality of the estimator, the second from basic properties of the function $\rho_{\tau}$, the third from the duality between the spectral and nuclear norms and Lemma \ref{lem:penalty_tuning}, the fourth by Lemma \ref{lem:latent_error}, and the fifth by Lemma \ref{lem:nuclear_norm}.
Therefore, with probability approaching one, for positive constants $C_1$ and $C_2$, we have
\[
\begin{array}{lll}
0 & \leq &\displaystyle \left[ \sum_{j=1}^{p}\left( (1-c_0) \hat{\sigma}_j \vert \hat{\theta}_j(\tau) - \theta_j(\tau) \vert + \hat{\sigma}_j \vert \theta_j(\tau) \vert - \hat{\sigma}_j \vert \hat{\theta}_j(\tau) \vert \right) \right]\\
& & + \left[\frac{3 C_1 \sqrt{r_{\tau}} \|\Pi(\tau)- \hat{\Pi}(\tau)\|_F }{\sqrt{nT} \sqrt{ \log( \max\{n,pc_T \} )} } - \frac{C_2 \|\Pi(\tau)- \hat{\Pi}(\tau)\|_* }{\sqrt{nT} \sqrt{ \log( \max\{n,pc_T \} )} } \right] , \\
\end{array}
\]
and the claim follows.
\end{proof}
Our next result shows how the function $ Q_{\tau}$ changes locally in the restricted set around $\theta(\tau), \Pi(\tau)$.
\begin{lemma}
\label{lem:lowerbound}
Under Assumption \ref{cond3}, for all $(\delta,\Delta) \in A_{\tau}$, we have that
\[
Q_{\tau}(\theta(\tau) + \delta, \Pi(\tau) + \Delta) - Q_{\tau}(\theta(\tau), \Pi(\tau)) \,\geq \, \min\left\{\frac{ \left( J_{\tau}^{1/2}(\delta,\Delta) \right)^2 }{4} , q J_{\tau}^{1/2}(\delta,\Delta) \right \}.
\]
\end{lemma}
\begin{proof}
Let
\[
\begin{array}{l}
v_{A_{\tau}} \,=\, \underset{v}{\sup} \Bigg\{ v\,:\, Q_{\tau}(\theta(\tau) + \tilde{\delta}, \Pi(\tau) + \tilde{\Delta}) - Q_{\tau}(\theta(\tau), \Pi(\tau)) \geq \frac{ \left( J_{\tau}^{1/2}(\tilde{\delta},\tilde{\Delta}) \right)^2 }{4},\,\,\forall (\tilde{\delta},\tilde{\Delta})\in A_{\tau}, \\
\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, J_{\tau}^{1/2}(\tilde{\delta},\tilde{\Delta}) \leq v \Bigg\}.
\end{array}
\]
Then by the convexity of $Q_{\tau}(\cdot)$ and the definition of $v_{A_u}$, we have that
\[
\begin{array}{l}
Q_{\tau}(\theta(\tau) + \tilde{\delta}, \Pi(\tau) + \tilde{\Delta}) - Q_{\tau}(\theta(\tau), \Pi(\tau)) \\
\geq \, \frac{ \left( J_{\tau}^{1/2}(\delta,\Delta) \right)^2 }{4} \wedge \left\{ \frac{ J_{\tau}^{1/2}(\delta,\Delta) }{v_{A_{\tau}} } \cdot \underset{(\tilde{\delta},\tilde{\Delta})\in A_{\tau},\, J_{\tau}^{1/2}(\tilde{\delta},\tilde{\Delta}) \geq v_{A_{\tau}} }{\inf } Q_{\tau}(\theta(\tau) + \tilde{\delta}, \Pi(\tau) + \tilde{\Delta}) - Q_{\tau}(\theta(\tau), \Pi(\tau) ) \right\}\\
\geq \,\, \frac{ \left( J_{\tau}^{1/2}(\delta,\Delta) \right)^2 }{4} \wedge \left\{ \frac{ J_{\tau}^{1/2}(\delta,\Delta) }{ v_{A_{\tau}} } \frac{ v_{A_{\tau}}^2 }{4} \right\}\\
\geq \frac{ \left( J_{\tau}^{1/2}(\delta,\Delta) \right)^2 }{4} \wedge q J_{\tau}^{1/2}(\delta,\Delta),
\end{array}
\]
where in last inequality we have used the fact that $v_{A_{\tau}} \,\geq \, 4q$. To see why this is true, notice that there exists $z_{X_{it} ,z } \in [0,z]$ such that
\begin{equation}
\label{eqn:lower_b}
\begin{array}{l}
Q_{\tau}(\theta(\tau) + \delta, \Pi(\tau) + \Delta) - Q_{\tau}(\theta(\tau), \Pi(\tau)) \\
=\,\, \displaystyle \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^T \mathbb{E} \left( \int_0^{X_{i,t}^{\prime} \delta + \Delta_{it} } \left(F_{Y_{i,t}|X_{i,t } ,\Pi_{i,t} } (X_{i,t}^{\prime} \theta(\tau) + \Pi_{i,t} +z ) - F_{Y_{i,t}|X_{i,t }, \Pi_{i,t} }(X_{i,t}^{\prime} \theta(\tau) + \Pi_{i,t}(\tau) ) \right ) dz \right) \\
=\,\, \displaystyle \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^{T} \mathbb{E} \Bigg( \int_0^{X_{i,t}^{\prime} \delta + \Delta_{i,t} } \left( z f_{Y_{i,t} |X_{i,t}, \Pi_{i,t}(\tau) }( X_{i,t}^{\prime} \theta(\tau) + \Pi_{i,t}(\tau) ) \right) + \\
\,\,\frac{z^2}{2}f_{Y_{i,t} |X_{i,t},\Pi_{i,t} }^{\prime}( X_{i,t}^{\prime}\theta(\tau) + \Pi_{i,t}(\tau) +z_{X_{i,t} ,z } ) dz \Bigg)\\
\geq \,\, \displaystyle \frac{\underline{f}}{nT} \sum_{i=1}^{n}\sum_{t=1}^T \mathbb{E} \left( \left(X_{i,t}^{\prime} \delta + \Delta_{i,t} \right)^2 \right) \,-\, \frac{1}{6} \frac{\bar{f}^{\prime} }{nT} \sum_{i=1}^{n}\sum_{t=1}^T \mathbb{E} \left( \left\vert X_{i,t}^{\prime} \delta + \Delta_{i,t} \right\vert^3 \right).
\end{array}
\end{equation}
Hence, if $(\delta,\Delta) \in A_{\tau}$ with $ J_{\tau}^{1/2}(\delta,\Delta) \,\leq \, 4q$ then
\[
\sqrt{ \frac{ \underline{f} }{nT} \sum_{i=1}^n\sum_{t=1}^{T} \mathbb{E}\left( \left( X_{i,t}^{\prime}\delta + \Delta_{i,t} \right)^2 \right) } \,\leq \, \frac{3}{2} \frac{ \underline{f}^{3/2} }{\bar{f}^{\prime} }\cdot \underset{ (\delta,\Delta) \in A_{\tau}, \delta \neq 0 }{\inf}\,\frac{ \left( \mathbb{E} \left( \frac{1}{nT}\sum_{i=1}^{n}\sum_{t=1}^{T} ( X_{i,t}^{\prime} \delta + \Delta_{i,t} )^2 \right) \right)^{3/2} }{ \mathbb{E} \left( \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^{T} \vert X_{i,t}^{\prime} \delta + \Delta_{i,t} \vert^3 \right) }
\]
combined with (\ref{eqn:lower_b}) implies
\[
Q_{\tau}(\theta(\tau) + \delta, \Pi(\tau) + \Delta) - Q_{\tau}(\theta(\tau), \Pi(\tau)) \,\geq \, \frac{ \left( J_{\tau}^{1/2}(\delta,\Delta) \right)^2 }{4} .
\]
\end{proof}
Next we study the behavior of the $\ell_2$ and nuclear norms in the restricted set $A_{\tau}$.
\begin{lemma}
\label{lem:norm1}
Under Assumption \ref{cond3}, for all $(\delta,\Delta) \in A_{\tau}$, we have
\[
\|\delta\|_{1,n,T}\,\leq \, \frac{2(C_0+1)}{\kappa_0}\left(\sqrt{s_{\tau}+1} + \frac{\sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }} \right) J_{\tau}^{1/2}(\delta,\Delta),
\]
and
\[
\| \Delta \|_{*}\,\leq \, (C_0+1)\sqrt{n T \log(\max\{ p c_T,n \} ) } \kappa_0^{-1} \left(\sqrt{s_{\tau}+1} + \frac{\sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }} \right) J_{{\tau}}^{1/2}(\delta,\Delta),
\]
with $C_0$ as in Lemma \ref{lem1}.
\end{lemma}
\begin{proof}
By Cauchy-Schwartz's inequality, the definition of $A_{\tau}$ and $J_{{\tau}}^{1/2}(\delta,\Delta)$, and Assumption \ref{cond3}, we have
\[
\begin{array}{lll}
\|\delta\|_{1,n,T} &\leq & \frac{5}{4} \left(\|\delta_{T_{\tau}} \|_{1} \,+\, \|\delta_{T_{\tau}^c} \|_{1}\right)\\
&\leq & \frac{5}{4} \|\delta_{T_{\tau}} \|_{1}\, + \, \frac{5C_0}{4} \left( \|\delta_{T_{\tau}}\|_1 + \frac{ \sqrt{r_{\tau}} \| \Delta \|_{F}}{\sqrt{ nT\log ( n \vee p c_T) } }\, \right)\\
& \leq & 2(C_0+1)\sqrt{s_{\tau}}\|\delta_{T_{\tau}}\|_2 \,+\,2C_0\left( \frac{\sqrt{r_{\tau}}\| \Delta \|_{F}}{\sqrt{ nT\log(n \vee p c_T) }} \right)\\
& \leq & 2(C_0+1)\left( \sqrt{s_{\tau}+1} + \frac{ \sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }} \right)\left(\|\delta_{T_{\tau}}\|_2 \,+\, \frac{ 1}{\sqrt{nT }} \| \Delta \|_{F} \right)\\
& \leq& 2(C_0+1) \left( \sqrt{s_{\tau}+1} + \frac{ \sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }} \right) \frac{J_{{\tau}}^{1/2}(\delta,\Delta)}{\kappa_0}.
\end{array}
\]
On the other hand, by the triangle inequality, the construction of the set $A_{\tau}$, and Cauchy-Schwartz's inequality
\[
\begin{array}{lll}
\|\Delta\|_* & \leq & C_0\sqrt{n T \log(n \vee p c_T) } \left( \|\delta_{T_{\tau}}\|_1 + \frac{ \sqrt{r_{\tau}} \| \Delta \|_F}{ \sqrt{n T \log(n \vee p c_T ) } } \right)\\
& \leq& (C_0+1) \sqrt{n T \log(n \vee p c_T) } \left( \sqrt{s_{\tau}+1}\|\delta_{T_{\tau}}\|_2 + \frac{ \sqrt{r_{\tau}} \| \Delta\|_F}{ \sqrt{n T \log(n \vee p c_T) } } \right)\\
& \leq &(C_0+1) \sqrt{n T \log( n \vee p c_T ) } \left(\sqrt{s_{\tau}+1} + \frac{ \sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }}\right) \frac{J_{{\tau}}^{1/2}(\delta,\Delta)}{\kappa_0}.
\end{array}
\]
\end{proof}
Using all the previous lemmas our next results provides the control of the empirical process associated with our estimator. Control of this empirical process leads to the convergence rates obtained in the paper.
\begin{lemma}
\label{lem:empiricalbound}
Let
\[
\begin{array}{l}
\epsilon(\eta) \,=\, \underset{ (\delta,\Delta) \in A_{\tau} \,:\, J_{\tau}^{1/2}(\delta,\Delta) \leq \eta }{\sup} \,\,\ \Bigg \vert \hat{Q}_{\tau}(\theta(\tau)+ \delta,\Pi(\tau) + \Delta) - \hat{Q}_{\tau}( \theta,\Pi ) -\\
\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\,\,\,\,\,\,\, Q_{\tau}(\theta(\tau)+ \delta,\Pi(\tau) + \Delta) + Q_{\tau}( \theta(\tau),\Pi(\tau) ) \Bigg\vert,
\end{array}
\]
and $\{\phi_{n}\}$ a sequence with $\phi_n/(\sqrt{\underline{f} } \log(c_T +1) ) \,\rightarrow \, \infty$. Then for all $\eta>0$
\[
\epsilon(\eta) \,\leq \, \frac{\tilde{C}_0 \eta c_T \phi_{n} \sqrt{\log(p c_T\vee n)}(\sqrt{1+s_{\tau} }+ \sqrt{ r_{\tau}/ \log(p c_T\vee n) } )(\sqrt{n} +\sqrt{d_T}) }{ \sqrt{nT} \kappa_{0} \underline{f}^{1/2} },
\]
for some constant $\tilde{C}_0 >0$, with probability at least $1- \alpha_{n}$. Here, the sequence $ \{\alpha_{n}\}$ is independent of $\eta$, and $\alpha_{n} \,\rightarrow 0$.
\end{lemma}
\begin{proof}
Let $\Omega_1$ be the event $ \max_{j \leq p} \vert \hat{\sigma}_j - 1\vert \,\leq \, 1/4$. Then, by Assumption , $P(\Omega_1) \,\geq \, 1- \gamma$ .
Next let $\kappa >0$, and $f = (\delta, \Delta) \in A_{\tau}$ and write
\[
\mathcal{F}\,=\, \{ (\delta,\Delta) \in A_{\tau}\,:\, \,\,\,\,\,\,\, \,\,J_{\tau}^{1/2}(\delta,\Delta) \leq \eta \}.
\]
Then notice that by Lemmas 4.1 and 4.2 from \cite{yu1994rates},
\begin{equation}
\label{eqn:s6}
\begin{array}{lll}
\mathbb{P}\left( \epsilon(\eta) \sqrt{nT} \,\geq \, \kappa \right) &\leq & \displaystyle 2 \,\mathbb{P}\left( \underset{ f \in \mathcal{F} }{\sup}\, \frac{1}{ \sqrt{n d_T} }\left\vert \sum_{ i= 1}^n \sum_{l=1}^{d_T} \sum_{ t \in H_l } \frac{ Z_{i,t}(f) }{ \sqrt{c_T} } \right\vert \,\geq \, \frac{ \kappa }{3} \right) \,+\, \\
& & \displaystyle \mathbb{P}\left( \underset{ f \in \mathcal{F} }{\sup}\, \frac{1}{ \sqrt{n d_T} }\left\vert \sum_{ i= 1}^n \sum_{ t\in R } \frac{ Z_{i,t}(f) }{ \sqrt{c_T} } \right\vert \,\geq \, \frac{ \kappa }{3} \right) \,+\,2 nT \left( \frac{1}{c_T} \right)^{\mu}\\
&=: & A_1 + A_2 +2 nT \left( \frac{1}{c_T} \right)^{\mu},
\end{array}
\end{equation}
where
\[
\begin{array}{lll}
Z_{i,t}(f)&=& \rho_{\tau}( \widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime}(\theta(\tau) +\delta) -(\Pi_{i,t}(\tau) +\Delta_{i,t} ) ) - \rho_{\tau}( \widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime}\theta(\tau) - \Pi_{i,t}(\tau) ) )\\
& & - \mathbb{E}\left( \rho_{\tau}( \widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime}(\theta(\tau) +\delta) -(\Pi_{i,t}(\tau) +\Delta_{i,t} ) ) - \rho_{\tau}(\widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime}\theta(\tau) - \Pi_{i,t}(\tau) ) ) \right).
\end{array}
\]
Next we proceed to bound each term in (\ref{eqn:s6}). To that end, notice that
\[
\begin{array}{lll}
\displaystyle \text{Var}\left( \sum_{ i= 1}^n \sum_{l=1}^{d_T} \sum_{ t \in H_l } \frac{ Z_{i,t}(f) }{ \sqrt{c_T} } \right) & \leq & \displaystyle \sum_{ i= 1}^n \sum_{l=1}^{d_T} \mathbb{E}\left( \left( \frac{1}{\sqrt{c_T}} \sum_{ t \in H_l } Z_{i,t}(f) \right)^2\right) \\
& \leq& \displaystyle \sum_{ i= 1}^n \sum_{l=1}^{d_T} \sum_{ t \in H_l } \mathbb{E}\left( \left( \tilde{X}_{i,t}^{\prime}\delta + \Delta_{i ,t} \right)^2 \right)\\
& \leq& \displaystyle \frac{ nT }{ \underline{f} } \left(J_{\tau }^{1/2}(\delta,\Delta)\right)^2.
\end{array}
\]
Let $\{\varepsilon_{i,l}\}_{i \in [n],\, l \in [d_T]}$ be i.i.d Rademacher variables independent of the data.
Therefore, by Lemma 2.3.7 in \cite{wellner2013weak}
\begin{equation}
\label{eqn:symmetrization}
\begin{array}{lll}
\displaystyle \,\mathbb{P}\left( \underset{ f \in \mathcal{F} }{\sup}\, \frac{1}{ \sqrt{n d_T} }\left\vert \sum_{ i= 1}^n \sum_{l=1}^{d_T} \sum_{ t \in H_l } \frac{ Z_{i,t}(f) }{ \sqrt{c_T} } \right\vert \geq \kappa\right)& \leq& \displaystyle \frac{ \mathbb{P}\left( \underset{f \in \mathcal{F}}{\sup} \left\vert \frac{1}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=1}^{d_T} \varepsilon_{i,l} \left(\sum_{t \in H_l} \frac{ Z_{i,t}(f)}{ \sqrt{c_T} }\right) \right\vert \,\geq \, \frac{\kappa}{4} \right) }{ 1 - \frac{4}{nT \kappa^2 } \,\underset{f \in \mathcal{F} }{\sup} \, \text{Var}( \sum_{i=1}^{n}\sum_{l=1}^{d_T} \sum_{t \in H_l} \frac{Z_{i,t}(f) }{\sqrt{c_T} } ) }\\
&\leq & \frac{ \mathbb{P}\left( A^0(\eta ) \,\geq \, \frac{\kappa}{12} | \Omega_1\right) \,+\, \mathbb{P} (\Omega_1^c) }{ 1- \frac{24 c_T \eta ^2 }{\underline{f} \kappa^2} },
\end{array}
\end{equation}
where
\[
\begin{array}{l} A^0(\eta ) \,:=\, \\
\displaystyle \underset{f \in \mathcal{F}}{\sup} \left\vert \frac{1}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=1}^{d_T} \varepsilon_{i,l} \left(\sum_{t \in H_l} \frac{ \rho_{\tau}(\widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime} (\theta(\tau) + \delta ) - (\Pi_{i,t}(\tau)+ \Delta_{i,t}) ) - \rho_{\tau}(\widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime} \theta(\tau) - \Pi_{i,t}(\tau) )}{ \sqrt{c_T} }\right) \right\vert .
\end{array}
\]
Next, note that
\[
\begin{array}{lll}
\rho_{\tau}(\widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime} (\theta(\tau) + \delta ) - (\Pi_{i,t}(\tau)+ \Delta_{i,t}) ) - \rho_{\tau}(\widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime} \theta(\tau) - \Pi_{i,t}(\tau) ) & =& \tau\left(\widetilde{X}_{i,t}^{\prime}\delta + \Delta_{i,t} \right)\\
& & + v_{i,t}(\delta,\Delta) \,+\, w_{i,t}(\delta,\Delta) ,
\end{array}
\]
where
\begin{equation}
\label{eqn:contraction1}
\begin{array}{lll}
\vert v_{i,t}(\delta,\Delta) \vert & =& \left\vert (\widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime} (\theta(\tau) + \delta ) - (\Pi_{i,t}(\tau)+ \Delta_{i,t}) )_{-} - (Y_{i,t} - \widetilde{X}_{i,t}^{\prime} (\theta(\tau) + \delta ) - \Pi_{i,t}(\tau) )_{-} \right\vert\\
&\leq & \vert \Delta_{i,t}\vert.
\end{array}
\end{equation}
and
\begin{equation}
\label{eqn:contraction2}
\begin{array}{lll}
\vert w_{i,t}(\delta,\Delta) \vert & =& \left\vert (\widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime} (\theta(\tau) + \delta ) - \Pi_{i,t}(\tau) )_{-} - (\widetilde{Y}_{i,t} - \widetilde{X}_{i,t}^{\prime}\theta(\tau) - \Pi_{i,t}(\tau) )_{-} \right\vert\\
&\leq & \vert \widetilde{X}_{i,t}^{\prime} \delta\vert.
\end{array}
\end{equation}
Moreover, notice that by Lemma \ref{lem:norm1},
\[
\{ (\delta,\Delta ) \in A_{\tau} \,:\, J_{\tau}^{1/2}(\delta,\Delta) \leq \eta \} \,\subset \{ (\delta,\Delta ) \in A_{\tau} \,:\, \|\delta\|_{1,n,T} \leq \eta \upsilon \},
\]
where
\[
\upsilon \,:=\, \frac{2(C_0+1)}{\kappa_0} \left(\sqrt{1+s_{\tau}} + \frac{ \sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }}\right) .
\]
Also by Lemma \ref{lem:norm1}, for $(\delta,\Delta) \in A_{\tau}$
\[
\|\Delta\|_{*} \,\leq \, \frac{ (C_0+1) J^{1/2}_{\tau}(\delta,\Delta) \sqrt{ nT \log(p c_T\vee n) }}{\kappa_0}\left(\sqrt{1+s_{\tau}} + \frac{ \sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }}\right) ,
\]
and so,
\[
\begin{array}{l}
\{ (\delta,\Delta ) \in A_{\tau} \,:\, \,\, J_{\tau}^{1/2}(\delta,\Delta) \leq \eta \} \,\subset \,\\
\left\{ (\delta,\Delta ) \in A_{\tau} \,:\, \,\,\|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 \right \}.
\end{array}
\]
Hence, defining
\[
\begin{array}{l}
\displaystyle B_1^0(\eta) \,=\, \sqrt{c_T} \underset{ \delta \,:\, \|\delta\|_{1,n,T} \leq \eta\upsilon }{\sup} \left\vert \frac{1}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=1}^{d_T} \varepsilon_{i,l}\left(\sum_{t \in H_l} \frac{ \widetilde{X}_{i,t}^{\prime}\delta }{c_T} \right) \right\vert, \,\,\\
\displaystyle B_2^0(\eta) \,=\, \sqrt{c_T} \underset{ \Delta \,:\, \|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 }{\sup} \left\vert \frac{1}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=1}^{d_T} \varepsilon_{i,l} \left(\sum_{t \in H_l} \frac{ \Delta_{i,t}}{c_T} \right) \right\vert\\
\displaystyle B_3^0(\eta) \,=\, \sqrt{c_T} \underset{ \Delta \,:\, \|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 }{\sup} \left\vert \frac{1}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=1}^{d_T} \varepsilon_{i,l} \left( \sum_{t \in H_l} \frac{ v_{i,t}(\delta,\Delta)}{c_T }\right) \right\vert, \,\,\\
\displaystyle B_4^0(\eta) \,=\, \sqrt{c_T} \underset{ \delta \,:\, \|\delta\|_{1,n,T} \leq \eta \upsilon }{\sup} \left\vert \frac{1}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=1}^{d_T} \varepsilon_{i,l}\left(\sum_{t\in H_l} \frac{ w_{i,t}(\delta,\Delta)}{ c_T }\right) \right\vert.\\
\end{array}
\]
By union bound we obtain that
\begin{equation}
\label{eqn:s7}
\mathbb{P}(A^0(\eta) \,\geq \, \kappa | \Omega_1) \,\leq \, \displaystyle \sum_{j=1}^{4} \mathbb{P}(B_j^0(\eta) \,\geq \, \kappa | \Omega_1),
\end{equation}
so we proceed to bound each term in the right hand side of the inequality above.
First, notice that
\[
\begin{array}{lll}
B_1^0(\eta) & \leq &\displaystyle 2 c_T \underset{ m \in [c_T] }{\max} \,\,\,\underset{ \delta \,:\, \|\delta\|_{1,n,T} \leq \eta\upsilon }{\sup} \left\vert \frac{1}{\sqrt{n T}} \sum_{i=1}^{n}\sum_{l=0}^{d_T- 1} \varepsilon_{i,l}\widetilde{X}_{i ,\,( 2l c_T +m )}^{\prime}\delta \right\vert,\\
\end{array}
\]
and hence by a union bound and the same argument on the proof of Lemma 5 in \cite{belloni2011l1}, we have that
\begin{equation}
\label{eqn:s8}
\mathbb{P}(B_1^0(\eta) \,\geq \, \kappa | \Omega_1) \,\leq \, 2p c_T \exp\left( - \frac{\kappa^2}{ 4c_T^2 (16\sqrt{2} \eta \upsilon)^2 } \right).
\end{equation}
Next we proceed to bound $B_3^0(\eta)$, by noticing that
\[
\begin{array}{lll}
B_3^0(\eta) & \leq & \displaystyle \underset{ m \in [c_T] }{\max} \,\,\, \underset{ \Delta \,:\, \|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 }{\sup} \left\vert \frac{\sqrt{c_T}}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=0}^{d_T- 1} \varepsilon_{i,l} v_{i, \, \,( 2l c_T +m )}(\delta,\Delta) \right\vert.
\end{array}
\]
Towards that end we proceed to bound the moment generating function of $B_3^0(\eta)$ and the use that to obtain an upper bound on $B_3^0(\eta)$.
Now fix $m \in [d_T]$ and notice that
\begin{equation}
\label{eqn:s10}
\begin{array}{l}
\displaystyle \mathbb{E} \left(\exp\left( \lambda \underset{ \Delta \,:\, \|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 }{\sup} \left\vert \frac{\sqrt{c_T}}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=0}^{d_T- 1} \varepsilon_{i,l} v_{i ,\, \,( 2l c_T +m )}(\delta,\Delta) \right\vert \right) \right) \\
\displaystyle \leq \, \mathbb{E} \left(\exp\left( \lambda \underset{ \Delta \,:\, \|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 }{\sup} \left\vert \frac{ \sqrt{c_T}}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=1}^{d_T} \varepsilon_{i,l} \, \Delta_{i, \, \,( 2l c_T +m )} \right\vert \right) \right) \\
\displaystyle \leq \, \mathbb{E} \Bigg(\underset{ \Delta \,:\, \|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 }{\sup} \Bigg(\exp\left( \frac{\lambda \sqrt{c_T} \| \Delta \|_* \,\mathbb{E}( \|\{\varepsilon_{il}\}\|_2)}{\sqrt{n d_T}}\right)\, \\
\,\,\,\,\,\,\,\,\,\displaystyle \exp \left( \lambda \frac{ \sqrt{c_T} \|\Delta\|_* ( \|\{\varepsilon_{i,l}\}\|_2 - \mathbb{E}( \|\{\varepsilon_{i,l}\}\|_2 ) )}{\sqrt{n d_T}} \right) \Bigg) \Bigg)\\
\displaystyle \leq \,\exp\left( \lambda \frac{ (C_0+1) c_4\eta c_T \sqrt{3 \log(p c_T\vee n) } ( \sqrt{1+s_{\tau}} + \sqrt{r_{\tau}/ \log(p c_T\vee n) } ) \left( \sqrt{n} + \sqrt{d_T} \right) }{ \kappa_0 } \right)\cdot \\
\displaystyle\exp\left( \frac{ (C_0+1)^2 c_4 \lambda^2 c_T^2 \eta^2 \log(p c_T\vee n) ( s_{\tau}+1 + r_{\tau}/ \log(p c_T\vee n) ) }{\kappa_0^2} \right),
\end{array}
\end{equation}
for a positive constant $c_4>0$, and where the first inequality holds by Ledoux-Talagrand's contraction inequality, the second by the the duality of the spectral and nuclear norms and the triangle inequality, the third by Theorem 1.2 in \cite{vu2007spectral} and by basic properties of sub-Gaussian random variables.
Therefore, by Markov's inequality and (\ref{eqn:s10}),
\begin{equation}
\label{eqn:s11}
\begin{array}{l}
\,\,\,\,\,\, \mathbb{P}\left( B_3^0(\eta ) \geq \kappa | \Omega_1 \right) \\
\leq \displaystyle c_T \underset{ m \in [c_T] }{ \max } \mathbb{P}\Bigg( \underset{ \Delta\,:\, \|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 }{\sup} \left\vert \frac{\sqrt{c_T}}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=0}^{d_T- 1} \varepsilon_{i,l} v_{i, \, \,( 2l c_T +m )}(\delta,\Delta) \right\vert \\
\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\geq \, \kappa \Bigg)\\
\leq \underset{ \lambda>0 }{ \inf }\,\Bigg[ \exp\left( - \lambda \kappa \right) \exp\left( \lambda \frac{(C_0+1) c_4\eta c_T \sqrt{3 \log(p c_T\vee n) }(\sqrt{1+s_{\tau}} +\sqrt{r_{\tau}/ \log(p c_T\vee n) } ) \left( \sqrt{n} + \sqrt{d_T} \right) }{ \kappa_0 } \right)\cdot \\
\,\,\,\,\,\,\, \displaystyle\exp\left( \frac{ (C_0+1)^2 c_4 \lambda^2 c_T^2 \eta^2 \log(p c_T\vee n) ((1 +s_{\tau}) + r_{\tau}/ \log(p c_T\vee n) ) }{\kappa_0^2} + \log c_T \right) \Bigg]\\
\leq c_5\exp\left( - \frac{ \kappa \kappa_0 }{ (C_0+1) \eta c_T \sqrt{3 \log(p c_T\vee n) }(\sqrt{1+s_{\tau}} + \sqrt{r_{\tau}/\log(p c_T\vee n) } )\left( \sqrt{n} + \sqrt{d_T} \right) } + \log c_T \right),
\end{array}
\end{equation}
for a positive constant $c_5 >0$.
Furthermore, we observe that
\[
B_2^0(\eta )\,\leq \, \underset{ m \in [d_T] }{ \max } \underset{ \Delta \,:\, \|\Delta\|_* \leq (C_0+1)\eta \sqrt{nT \log(p c_T\vee n)} (\sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )/\kappa_0 }{\sup} \left\vert \frac{\sqrt{c_T}}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=0}^{d_T-1} \varepsilon_{i,l} \Delta_{i , \,( 2l c_T +m )} \right\vert.
\]
Hence, with the same argument for bounding $B_3^0(\eta )$, we have
\begin{equation}
\label{eqn:s12}
\begin{array}{l}
\mathbb{P}\left( B_2^0(\eta ) \geq
\kappa | \Omega_1 \right)\\ \,\leq\, c_5\exp\left( - \frac{ \kappa \kappa_0 }{ (C_0+1) \eta c_T \sqrt{3 \log(p c_T\vee n) }( \sqrt{1+s_{\tau}} + \sqrt{r_{\tau}/\log(p c_T\vee n)} )\left( \sqrt{n} + \sqrt{d_T} \right) } + \log c_T \right).
\end{array}
\end{equation}
Finally, we proceed to bound $B_4^0(\eta ) $. To that end, notice that
\[
B_4^0(\eta ) \,\leq \, \underset{ m \in [d_T] }{ \max } \,\, \underset{ \delta \,:\, \|\delta\|_{1,n,T} \leq \eta \upsilon }{\sup} \left\vert \frac{ \sqrt{c_T}}{\sqrt{n d_T}} \sum_{i=1}^{n}\sum_{l=0}^{d_T -1} \varepsilon_{i,l} w_{i , \, ( 2lc_T +m ) } (\delta,\Delta) \right\vert,
\]
and by (\ref{eqn:contraction2}) and Ledoux-Talagrand's inequality, as in (\ref{eqn:s8}), we obtain
\begin{equation}
\label{eqn:s13}
\mathbb{P}(B_4^0(\eta) \,\geq \, \kappa | \Omega_1) \,\leq \, 2p c_T \exp\left( - \frac{\kappa^2}{ 4c_T^2 (16\sqrt{2} \eta \upsilon)^2 } \right).
\end{equation}
Therefore, letting
\[
\kappa \,=\, \frac{ \eta c_T \phi_{n} (1+C_0)^2\sqrt{ \log(p c_T\vee n)}(\sqrt{(1+s_{\tau}) }+ \sqrt{r_{\tau}/ \log(p c_T\vee n)} )(\sqrt{n} +\sqrt{d_T}) }{\kappa_{0} \underline{f}^{1/2} },
\]
and repeating the argument above for bounding $A_2$ in (\ref{eqn:s6}), combining (\ref{eqn:s6}), (\ref{eqn:symmetrization}), \eqref{eqn:s7}, \eqref{eqn:s8}, \eqref{eqn:s11}, \eqref{eqn:s12} and \eqref{eqn:s13},
we obtain that
\[
\begin{array}{lll}
\mathbb{P}( \epsilon(\eta ) \,\geq \, \frac{\kappa}{\sqrt{nT}} ) & \leq & 5\frac{\gamma + 4\exp\left( \log(p c_T\vee n) - C_1\frac{ \phi_{n}^2\log(p c_T\vee n)}{ \underline{f} } (\sqrt{n} +\sqrt{d_T})^2 \right) + 2 c_5\exp\left(- C_2 \frac{2\phi_{n} }{\underline{f}^{1/2} } \right) }{1 - \frac{3\kappa_0^2 }{ c_T\phi_{n} \,(1+C_0)^2( \sqrt{n} +\sqrt{d_T})^2 \log(p c_T\vee n) ( \sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/ \log(p c_T\vee n) } )^2 }} \\
& &\,+\, nT \left( \frac{1}{c_T} \right)^{\mu},
\end{array}
\]
for some positive constants $C_1$ and $C_2$.
\end{proof}
Combining all the previous lemmas we prove Theorem \ref{thm:1} in the next subsection.
\subsection{Proof of Theorem \ref{thm:1}}
\label{sec:proog_thm1}
\begin{proof}
Recall from Lemma \ref{lem1}, our choices of $ \nu_{1}$ and $\nu_2$ are
\[
\nu_{1} \,=\,C_{0}^{\prime}\sqrt{ \frac{ c_T \log( \max\{n,pc_T\} ) }{ n d_T} },
\]
and
\[
\nu_2 \,=\,\frac{200 c_T}{n T}\left( \sqrt{n} + \sqrt{d_T} \right),
\]
for $C_{0}^{\prime} \,=\, 9/(1-c_0)$, and $c_0$ as in Lemma \ref{lem1}.
Let
\begin{equation}
\label{eqn:eta_def}
\eta \,=\, \frac{8 \phi_{n} ( C_{0}^{\prime}(1+C_0) + \tilde{C}_0 + 200(1+C_0))\sqrt{c_T \, \log(p c_T\vee n)}( \sqrt{(1+s_{\tau})}+ \sqrt{r_{\tau}/\log(p c_T\vee n)} )(\sqrt{n} +\sqrt{d_T}) }{ \sqrt{n d_T} \kappa_{0} \underline{f}^{1/2} },
\end{equation}
for $C_0$ as in Lemma \ref{lem1}, and $\tilde{C}_{0}$ as in Lemma \ref{lem:empiricalbound}.
Throughout we assume that the following events happen:
\begin{itemize}
\item $\Omega_1\,:=\,$ the event that $(\hat{\theta}(\tau) - \theta(\tau), \hat{\Pi}(\tau) -\Pi(\tau)) \in A_{\tau }$.
\item $\Omega_2\,:=\,$ the event for which the upper bound on $\epsilon(\eta )$ in Lemma \ref{lem:empiricalbound} holds.
\end{itemize}
Suppose that
\begin{equation}
\label{eqn:eta}
\vert J_{\tau}^{1/2} (\hat{\theta}(\tau) - \theta(\tau), \hat{\Pi}(\tau) -\Pi(\tau)) \vert \,>\, \eta.
\end{equation}
Then, by the convexity of $A_{\tau }$, and of the objective $\hat{Q}$ with its constraint, we obtain that
\[
\begin{array}{l}
0 \,>\, \underset{ (\delta,\Delta)\in A_{\tau} \,:\, \vert J_{\tau}^{1/2} (\delta,\Delta)\vert = \eta }{\min} \hat{Q}_{\tau}(\theta(\tau)+\delta, \Pi(\tau)+\Delta) - \hat{Q}(\theta(\tau),\Pi(\tau)) + \nu_{1} \left[ \| \theta(\tau)+ \delta\|_{1,n,T} - \|\theta(\tau)\|_{1,n,T} \right] \\
\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,+\nu_2\left[ \| \Pi(\tau)+ \Delta\|_{*} - \|\Pi(\tau)\|_{*} \right]
\end{array}
\]
Moreover, by Lemma \ref{lem:norm1} and the triangle inequality,
\[
\begin{array}{lll}
\|\theta(\tau)\|_{1,n,T} - \| \theta(\tau)+ \delta\|_{1,n,T}& \,\leq \,& \|\delta_{T_{\tau}}\|_{1,n,T}\\
& \,\leq \, & 2(1+C_0) \frac{ J^{1/2}_{\tau}(\delta,\Delta) }{\kappa_0}\left(\sqrt{1+s_{\tau}}+ \frac{ \sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }}\right) ,
\end{array}
\]
and
\[
\begin{array}{lll}
\|\Pi(\tau)\|_{*} - \| \Pi(\tau)+ \Delta\|_{*}& \leq & \|\Delta\|_{*}\\
&\leq & (1+C_0) \sqrt{n T \log(p c_T\vee n) }\frac{ J^{1/2}_{\tau}(\delta,\Delta) }{\kappa_0}\left(\sqrt{1+s_{\tau}}+ \frac{ \sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }}\right).
\end{array}
\]
\vspace{-0.1in}
Therefore,
\[
\begin{array}{lll}
0 & >& \displaystyle \underset{ (\delta,\Delta)\in A_{\tau} \,:\, \vert J_{\tau}^{1/2} (\delta,\Delta)\vert = \eta }{\min} \hat{Q}(\theta(\tau)+\delta,\Delta+ \Pi(\tau)) - \\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \hat{Q}(\theta(\tau),\Pi(\tau)) - 2 \nu_{1} (1+C_0) \frac{ J^{1/2}_{\tau}(\delta,\Delta) }{\kappa_0}\left(\sqrt{1+s_{\tau}}+\frac{ \sqrt{r_{\tau}}}{\sqrt{\log(n \vee p c_T) }}\right),\\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, - \nu_2(1+C_0)\sqrt{n T \log(p c_T\vee n) }\frac{ J^{1/2}_{\tau}(\delta,\Delta) }{\kappa_0}\left( \sqrt{s_{\tau}+1} + \frac{ \sqrt{r_{\tau}+1} }{ \sqrt{ \log(p c_T\vee n) } } \right)\\
&= & \displaystyle \underset{ (\delta,\Delta)\in A_{\tau} \,:\, \vert J_{\tau}^{1/2} (\delta,\Delta)\vert = \eta }{\min} \Bigg[ \hat{Q}_{\tau}(\theta(\tau)+\delta,\Delta+ \Pi(\tau) ) - \hat{Q}(\theta(\tau),\Pi(\tau) ) \\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, - Q(\theta(\tau)+\delta,\Delta+ \Pi(\tau)) + Q(\theta(\tau),\Pi(\tau) ) \\
& & \,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \displaystyle + Q(\theta(\tau)+\delta,\Delta+ \Pi(\tau) ) - Q(\theta(\tau),\Pi(\tau) )\, - \\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,2C_{\tau} (1+ C_0)\sqrt{\frac{c_T \, \log(p c_T\vee n)}{n d_T}} (\sqrt{n} +\sqrt{d_T})\frac{ J^{1/2}_{\tau}(\delta,\Delta) }{\kappa_0}\left( \sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} \right)-\\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \, \frac{200 c_T}{n T}\left( \sqrt{n} + \sqrt{d_T} \right) (C_0+1)\sqrt{n T \log(p c_T\vee n) }\frac{J^{1/2}_{\tau}(\delta,\Delta) }{\kappa_0}\cdot \\
&& \,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \, \left( \sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n)} \right)\Bigg]\\
\end{array}
\]
\[
\begin{array}{lll}
& \geq &\displaystyle \underset{ (\delta,\Delta)\in A_{\tau} \,:\, \vert J_{\tau}^{1/2} (\delta,\Delta)\vert = \eta }{\min} Q(\theta(\tau)+\delta,\Delta+ \Pi(\tau) ) - Q(\theta(\tau),\Pi(\tau) ) \\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, - [2 C_{0}^{\prime}(1+ C_0) + 200(C_0+1)]\sqrt{\frac{c_T \,\log(p c_T\vee n)}{n d_T}} (\sqrt{n} +\sqrt{d_T})\frac{ J^{1/2}_{\tau}(\delta,\Delta) }{\kappa_0}\cdot\\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \left( \sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n) } \right)\\
& &\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\, \displaystyle - \frac{\tilde{C}_0 \eta c_T \phi_{n} \sqrt{\log(p c_T\vee n)}(\sqrt{1+s_{\tau} }+ \sqrt{ r_{\tau}/ \log(p c_T\vee n) } )(\sqrt{n} +\sqrt{d_T}) }{ \sqrt{nT} \kappa_{0} \underline{f}^{1/2} }\\
\end{array}
\]
\begin{equation}
\label{eqn:contradiction}
\begin{array}{lll}
& \geq& \displaystyle \frac{\eta ^2}{4} \wedge (\eta q) - \,[2 C_{0}^{\prime} (1+ C_0) + 200(C_0+1)]\sqrt{\frac{c_T (1+ s_{\tau})\, \log(p c_T\vee n)}{n d_T}} (\sqrt{n} +\sqrt{d_T})\frac{ \eta }{\kappa_0} \cdot\\
& & \left( \sqrt{s_{\tau}+1} + \sqrt{r_{\tau}/\log(p c_T\vee n) } \right)- \frac{\tilde{C}_0 \eta c_T \phi_{n} \sqrt{\log(p c_T\vee n)}(\sqrt{1+s_{\tau} }+ \sqrt{ r_{\tau}/ \log(p c_T\vee n) } )(\sqrt{n} +\sqrt{d_T}) }{ \sqrt{nT} \kappa_{0} \underline{f}^{1/2} }\\
& \geq & \displaystyle \frac{\eta ^2}{4} - \frac{2 \eta \phi_{n} ( C_{0}^{\prime}(1+C_0) + \tilde{C}_0+200(C_0+1))\sqrt{c_T \,\log(p c_T\vee n)}(\sqrt{n} +\sqrt{d_T}) }{ \sqrt{n d_T} \kappa_{0} \underline{f}^{1/2} }\cdot\\
& &(\sqrt{(1+s_{\tau}) } + \sqrt{r_{\tau} /\log(p c_T\vee n) } )\\
& =& 0,
\end{array}
\end{equation}
where the the second inequality follows from Lemma \ref{lem:empiricalbound}, the third from Lemma \ref{lem:lowerbound}, the fourth from our choice of $\eta$ and (\ref{eqn:signal}), and the equality also from our choice of $\eta$. Hence, (\ref{eqn:contradiction}) leads to a contradiction which shows that (\ref{eqn:eta}) cannot happen in the first place. As a result, by Assumption \ref{cond3},
\[
\frac{\|\hat{\Pi}(\tau)\, -\, \Pi(\tau) \|_F}{\sqrt{nT}} \,\leq \, \frac{ 1 }{\kappa_0 }\vert J_{\tau}^{1/2} (\hat{\theta}(\tau)\, -\, \theta(\tau), \hat{\Pi}(\tau) -\Pi(\tau) ) \vert \,\leq \, \frac{ \eta }{\kappa_0},
\]
which holds with probability approaching one.
To conclude the proof, let $\hat{\delta} \,=\, \hat{\theta} -\theta $ and notice that
\[
\begin{array}{lll}
\displaystyle \| \hat{\delta}_{ (T_{\tau} \cup \overline{T}_{\tau}(\hat{\delta},m))^c } \|^2 & \,\leq\, & \displaystyle \sum_{k \geq m+1} \frac{ \| \hat{\delta}_{T_{\tau}^c}\|_1^2 }{k^2} \\
&\,\leq \, & \displaystyle \frac{\|\hat{\delta}_{T_{\tau}^c}\|_1^2}{m}\\
&\,\leq \,& \displaystyle \frac{4C_0}{m} \left[\|\hat{\delta}_{T_{\tau}}\|_1^2 + \frac{ r_{\tau} \|\Pi(\tau) - \hat{\Pi}(\tau) \|_F^2}{nT \log( p c_T \vee n ) } \right]\\
&\,\leq \, & \displaystyle \frac{4C_0}{m}\left[ s_{\tau}\, \|\hat{\delta}_{ T_{\tau} \cup \overline{T}_{\tau}(\hat{\delta},m) } \|^2 + \frac{ r_{\tau} \|\Pi(\tau) -\hat{\Pi}(\tau) \|_F^2}{nT \log( p c_T \vee n ) } \right],
\end{array}
\]
which implies
\[
\begin{array}{lll}\displaystyle \|\hat{\delta}\|\,&\leq& \, \left( 1+ 2C_0 \sqrt{\frac{s_{\tau}}{m}} \right)\left( \|\hat{\delta}_{ T_{\tau} \cup \overline{T}_{\tau}(\hat{\delta},m) } \| + \frac{ \sqrt{r_{\tau}}\|\Pi(\tau) -\hat{\Pi}(\tau) \|_F}{\sqrt{nT \log( c_T p \vee n )} } \right) \\
&\leq& \frac{ J_{{\tau}}^{1/2}(\hat{\delta}, \hat{\Pi}(\tau)\, -\, \Pi(\tau) ) }{\kappa_m } \left( 1+ 2C_0 \sqrt{\frac{s_{\tau}}{m}} \right),
\end{array}
\]
and the result follows.
\end{proof}
\section{Proof of Theorem \ref{thm3} }
\subsection{Auxiliary lemmas for proof of Theorem \ref{thm3}}
\begin{lemma}
\label{lem:low_rank}
Suppose that Assumptions \ref{cond1}--\ref{cond2} and \ref{cond5} hold.
Let
$$
\nu_{1} \,=\,\displaystyle \frac{2}{nT }\sum_{i=1}^n \sum_{t=1}^T \|X_{i,t}\|_{\infty}.
$$
and
$$\nu_2 \,=\, \frac{200 c_T}{n T}\left( \sqrt{n} + \sqrt{d_T} \right).$$
We have that
\[
( \hat{\Pi}(\tau) -\Pi(\tau) - X\theta(\tau) ) \in A^{\prime}_{\tau},
\]
with probability approaching one, where
\[
\begin{array}{l}
A_{\tau}^{\prime } = \Bigg\{ \Delta \in \mathbb{R}^{n \times T } \,:\, \| \Delta \|_* \leq c_0\sqrt{r_{\tau}}\left( \|\Delta \|_F+ \| \xi\|_* \right),\,\,\, \| \Delta \|_{\infty} \leq c_1 \Bigg\},\\
\end{array}
\]
and $c_0$ and $c_1$ are positive constants that depend on $\tau$. Furthermore, $\hat{\theta}(\tau ) = 0$.
\end{lemma}
\begin{proof}
First, we observe that $C$ in the statement of Theorem \ref{thm3} can be take as $C = \| X\theta(\tau) + \Pi(\tau) \|_{\infty}$. And so,
\[
\left\| X\theta(\tau) + \Pi(\tau) - \hat{\Pi}(\tau)\right\|_{\infty} \,\leq \, 2C \,=:\,c_1.
\]
Next, notice that for any $\check{\Pi} \in \mathbb{R}^{n \times T}$ and $\check{\theta} \in \mathbb{R}^p \backslash \{0\}$,
\[
\begin{array}{lll}
\displaystyle \hat{Q}_{\tau}(0, \check{\Pi} ) - \hat{Q}_{\tau}( \check{\theta} , \check{\Pi} ) - \nu_{1} \|\check{\theta }\|_{1,n,T} & \leq & \displaystyle \frac{1}{nT} \sum_{i=1}^n \sum_{t=1}^T \vert X_{i,t}^{\prime} \check{\theta}\vert - \nu_{1} \|\check{\theta}\|_1\\
& \leq & \displaystyle \frac{1}{nT} \sum_{i=1}^n \sum_{t=1}^T \vert X_{i,t}^{\prime} \check{\theta}\vert - \nu_{1} \|\check{\theta}\|_{1,n,T} \\
& \leq & \displaystyle \frac{1}{nT} \sum_{i=1}^n \sum_{t=1}^T \underset{j =1 \ldots,p}{\max} \left \vert\frac{ X_{i,t,j} }{ \hat{\sigma}_j } \right\vert \| \check{\theta}\|_{1,n,T} - \nu_{1} \|\check{\theta}\|_{1,n,T} \\
& <&0,
\end{array}
\]
where the first inequality follows since $\rho_{\tau}$ is a contraction map. Therefore, $\hat{\theta}(\tau) = 0$. Furthermore, we have
\[
\begin{array}{lll}
0 & \leq & \displaystyle \hat{Q}_{\tau}( 0, X\theta(\tau) + \Pi(\tau) ) - \hat{Q}_{\tau}( 0, \hat{\Pi}(\tau) ) \,+\, \nu_2\left( \| X\theta(\tau) + \Pi(\tau) \|_* - \|\hat{\Pi}(\tau)\|_* \right)\\
& \leq&\displaystyle \left\vert \frac{1}{nT} \sum_{ i= 1}^n \sum_{t=1}^T a_{i,t} \left( ( X\theta(\tau) + \Pi(\tau)) - \hat{\Pi}(\tau) \right) \right\vert \\
& & \,+\, \nu_2\left( \| X\theta(\tau) + \Pi(\tau) \|_* - \|\hat{\Pi}(\tau)\|_* \right)\\
& \leq& \displaystyle \| X\theta(\tau) + \Pi(\tau) - \hat{\Pi}(\tau) \|_{*}\left( \underset{ \| \tilde{\Delta} \|_* \leq 1 }{\sup}\, \left\vert \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^{T} a_{i,t} \tilde{\Delta}_{i,t} \right\vert \right)\\
& & \,+\, \nu_2\left( \| X\theta(\tau) + \Pi(\tau) \|_* - \|\hat{\Pi}(\tau)\|_* \right)\\
& \leq& \displaystyle \frac{200 c_T}{nT}\left( \sqrt{n}+ \sqrt{d_T} \right) \left( \| X\theta(\tau) + \Pi(\tau) - \hat{\Pi}(\tau) \|_{*} + \| X\theta(\tau) + \Pi(\tau) \|_{*} -\| \hat{\Pi}(\tau) \|_* \right) \\
& & \displaystyle \,\,\,\,-\,\, \frac{100 c_T}{n T }\left( \sqrt{n}+ \sqrt{d_T} \right) \| X\theta(\tau) + \Pi(\tau) - \hat{\Pi}(\tau) \|_{*}\\
& \leq& \displaystyle \frac{200 c_T}{nT}\left( \sqrt{n}+ \sqrt{d_T} \right) \left( \| X\theta(\tau) + \Pi(\tau) + \xi - \hat{\Pi}(\tau) \|_{*} + \| X\theta(\tau) + \Pi(\tau) + \xi \|_{*} -\| \hat{\Pi}(\tau) \|_* \right) \\
& &\displaystyle \,\,\,\,+\,\frac{400 c_T}{nT}\left( \sqrt{n}+ \sqrt{d_T} \right) \|\xi\|_*\,\,-\,\, \frac{100 c_T}{n T }\left( \sqrt{n}+ \sqrt{d_T} \right) \| X\theta(\tau) + \Pi(\tau) - \hat{\Pi}(\tau) \|_{*}\\
& \leq& \displaystyle \frac{c_1\,c_T}{nT}\left( \sqrt{n}+ \sqrt{d_T} \right) \sqrt{r_{\tau}} \| X\theta(\tau) + \Pi(\tau) + \xi - \hat{\Pi}(\tau)\|_F \\
& &\displaystyle \,\,\,\,+\,\frac{400 c_T}{nT}\left( \sqrt{n}+ \sqrt{d_T} \right) \|\xi\|_*\,\,-\,\, \frac{100 c_T}{n T }\left( \sqrt{n}+ \sqrt{d_T} \right) \| X\theta(\tau) + \Pi(\tau) - \hat{\Pi}(\tau) \|_{*}\\
\end{array}
\]
for some positive constant $c_1$, where the first inequality follows from the optimality of the estimator, the second as in the proof of Lemma \ref{lem1}, the third by a basic property of the nuclear norm, the fourth by Lemma \ref{lem:latent_error}, the fifth by the triangle inequality, and the six by Assumption \ref{cond5} and Lemma \ref{lem:nuclear_norm}.
\end{proof}
\begin{lemma}
\label{lem:empiricalbound2}
Let
\[
\begin{array}{l}
\epsilon^{\prime}(\eta) \,=\, \underset{ (\delta,\Delta) \in A_{\tau} \,:\, J_{\tau}^{1/2}(\delta,\Delta) \leq \eta }{\sup} \,\,\ \Bigg \vert \hat{Q}_{\tau}(0,X\theta(\tau) + \Pi(\tau) + \Delta) - \hat{Q}_{\tau}( 0, X\theta(\tau) + \Pi(\tau)) -\\
\,\,\,\,\,\,\, \,\,\,\,\,\,\,\,\,\,\,\,\,\,\, Q_{\tau}(0,X\theta(\tau) + \Pi(\tau) + \Delta) + Q_{\tau}(0, X\theta(\tau) + \Pi(\tau)) \Bigg\vert,
\end{array}
\]
and $\{\phi_{n}\}$ a sequence with $\phi_n/ (\sqrt{\underline{f} }\log(c_T+1) )\,\rightarrow \, \infty$. Then for all $\eta>0$
\[
\epsilon^{\prime}(\eta) \,\leq \, \frac{\tilde{C}_0 \eta c_T \phi_{n} \sqrt{ r_{\tau}}(\sqrt{n} +\sqrt{d_T}) }{ \sqrt{nT} \underline{f}},
\]
for some constant $\tilde{C}_0 >0$, with probability at least $1- \alpha_{n}$. Here, the sequence $ \{\alpha_{n}\}$ is independent of $\eta$, and $\alpha_{n} \,\rightarrow 0$.
\end{lemma}
\begin{proof}
This follows similarly to the proof of Lemma \ref{lem:empiricalbound}.
\end{proof}
\begin{lemma}
\label{lem:lower_bound}
Let
\[
A_{\tau}^{\prime \prime } \,=\,\left\{ \Delta \in A_{\tau}^{\prime } \,:\, q(\Delta ) \geq 2\eta_0 , \,\,\,\Delta \neq 0 \right\},
\]
with
\[
\eta_0 \,=\, \frac{\tilde{C}_1 c_T \phi_{n} \sqrt{ r_{\tau}}(\sqrt{n} +\sqrt{d_T}) }{ \sqrt{nT} \underline{f} },
\]
for an appropriate constant $\tilde{C}_1 >0$,
and
\[
q(\Delta) \,=\, \frac{3}{2} \frac{ \underline{f}^{3/2} }{\bar{f}^{\prime} }\,\frac{ \left( \frac{1}{nT}\sum_{i=1}^{n}\sum_{t=1}^{T} ( \Delta_{i,t} )^2 \right)^{3/2} }{ \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^{T} \vert \Delta_{i,t} \vert^3 }.
\]
Under Assumptions \ref{cond1}-\ref{cond2} and \ref{cond5},
for any $\Delta \in A_{\tau}^{\prime \prime }$ we have that
\[
\displaystyle Q_{\tau}(0,X\theta(\tau) + \Pi(\tau) + \Delta ) - Q_{\tau}( 0,X\theta(\tau) + \Pi(\tau) ) \,\geq \, \min\left\{\frac{ \underline{f} \|\Delta\|^2 }{4 nT} , \frac{ 2\eta \underline{f}^{1/2} \|\Delta\| }{ \sqrt{n T} } \right \}.
\]
\end{lemma}
\begin{proof}
This follows as the proof of Lemma \ref{lem:lowerbound}.
\end{proof}
\subsection{Proof of Theorem \ref{thm3}}
The proof of Theorem \ref{thm3} proceeds by exploiting Lemmas \ref{lem:low_rank} and \ref{lem:lower_bound}. By Lemma \ref{lem:low_rank}, we have that
\begin{equation}
\label{eqn:event}
\displaystyle \hat{\Delta} \,:=\,\hat{\Pi}(\tau) -X\theta(\tau) - \Pi(\tau) \in A_{\tau}^{\prime },
\end{equation}
with high probability. Therefore, we assume that (\ref{eqn:event}) holds. Hence, if $ \hat{\Delta} \notin A_{\tau}^{\prime \prime}$,
then
\begin{equation}
\label{eqn:bound1}
\displaystyle \frac{1}{ \sqrt{nT} } \|\hat{\Delta}\|_F\,< \, \frac{ 4\,\eta\,\left( \sum_{i=1}^n \sum_{t=1}^T \vert \hat{\Delta}_{i,t} \vert^3 \right) }{3\,\left( \sum_{i=1}^n \sum_{t=1}^T \hat{ \Delta}_{i,t}^2 \right) } \frac{ \overline{f}^{\prime} }{ \underline{f}^{3/2} }\,\leq \,\frac{4 \overline{f}^{\prime} \| \hat{ \Delta} \|_{\infty} \,\eta }{ 3 \underline{f}^{3/2} }.
\end{equation}
If $ \hat{\Delta} \in A_{\tau}^{\prime \prime}$, then we proceed as in the proof of Theorem \ref{thm:1} by exploiting Lemma \ref{lem:empiricalbound2}, and treating
$X\theta(\tau) + \Pi(\tau)$ as the latent factors matrix, the design matrix as the matrix zero, $A_{\tau}^{\prime \prime}$ as $A_{\tau}$, and
\[
\kappa_0 \,=\, \underline{f}^{1/2},
\]
in Assumption \ref{cond3}. This leads to
\begin{equation}
\label{eqn:bound2}
\displaystyle \frac{1}{ \sqrt{nT} } \|\hat{\Delta}\|_F\,\leq \, \eta,
\end{equation}
and the claim in Theorem \ref{thm3} follows combining (\ref{eqn:bound1}) and (\ref{eqn:bound2}).
\subsection{Proof of Corollary \ref{cor1} }
First notice that by Theorem \ref{thm:1} and Theorem 3 in \cite{yu2014useful},
\begin{equation}
\label{eqn:cor_step1}
v \,:=\, \max\left\{ \underset{ O \in \mathbb{O}_{r_{\tau}} }{\min} \| \hat{g}(\tau) O - g(\tau)\|_F , \underset{ O \in \mathbb{O}_{r_{\tau}} }{\min} \| \tilde{\hat{\lambda}}(\tau) O - \tilde{\lambda}(\tau)\|_F \right \} \,=\, O_{\mathbb{P}}\left( \frac{ (\sigma_1( \tau) +
\sqrt{r_{\tau} }\, \mathrm{Err} ) \mathrm{Err}}{(\sigma_{r_{\tau} -1}( \tau))^2 - (\sigma_{r_{\tau} }( \tau))^2 } \right).
\end{equation}
Furthermore,
\[
\begin{array}{lll}
\displaystyle \frac{\| \hat{\lambda}(\tau) - \lambda(\tau)\|_F^2}{nT} & = & \displaystyle \frac{1}{nT} \sum_{j=1}^{ r_{\tau} } \| \lambda_{\cdot,j}(\tau) - \hat{\lambda}_{\cdot,j}(\tau) \|^2 \\
& \leq& \displaystyle \frac{2}{nT}\sum_{j=1}^{ r_{\tau} } (\sigma_j -\hat{\sigma}_j )^2 \,+\, \frac{2}{nT}\sum_{j=1}^{ r_{\tau} } \,\sigma_j^2 \| \tilde{\hat{\lambda}}_j(\tau) - \tilde{ \lambda}_j(\tau) \|^2\\
& \leq& \displaystyle \frac{2}{nT}\sum_{j=1}^{ r_{\tau} } (\sigma_j -\hat{\sigma}_j )^2 \,+\, \frac{2\,\sigma_1^2 }{nT} \sum_{j=1}^{ r_{\tau} } \| \tilde{\hat{\lambda}}_j(\tau) - \tilde{ \lambda}_j(\tau) \|^2\\
& \leq & \displaystyle \frac{2\, r_{\tau}}{nT} ( \sigma_1 - \hat{\sigma}_1 )^2 \,+\, \frac{2\, \sigma_1^2 }{nT}\| \tilde{\hat{\lambda}}(\tau) - \tilde{ \lambda}(\tau) \|_F^2\\
& \leq & \displaystyle \frac{2\, r_{\tau}}{nT} \| \Pi(\tau) \,-\, \hat{\Pi}(\tau) \|_F^2 \,+\, \frac{2\, \sigma_1^2 }{nT}\| \tilde{\hat{\lambda}}(\tau) - \tilde{ \lambda}(\tau) \|_F^2\\
& =& \displaystyle O_{ \mathbb{P} } \left( \frac{ r_{\tau} \phi_{n}^2 c_T \log(p c_T \vee n ) (1+s_{\tau} + r_{\tau}/ \log(p c_T \vee n ) ) }{\kappa_{0}^4 \, \, \underline{f} }\left( \frac{1}{n} +\frac{1}{d_T} \right ) \right) \,+\, \\
& & \displaystyle O_{\mathbb{P}}\left( \frac{ \sigma_1^2}{nT} \frac{ (\sigma_1( \tau) +
\sqrt{r_{\tau} }\, \mathrm{Err} )^2 \mathrm{Err} ^2 }{ \left( (\sigma_{r_{\tau} -1}( \tau))^2 - (\sigma_{r_{\tau} }( \tau))^2 \right)^2 } \right),
\end{array}
\]
where the third inequality follows from Weyl's inequality, and the last one from (\ref{eqn:cor_step1}).
\section{Proof of Theorem \ref{thm_c} }
Conditioning on $\Pi$ and $\{X_{i,t}\}$,
as in \cite{yu1994rates}, we define the sequence $\{\tilde{\varepsilon}_{i,t} \}_{i \in [n], t \in [T]}$
such that
\begin{itemize}
\item $\{\tilde{\varepsilon}_{i,t}\}_{i \in [n], t \in [T]}$ is independent of $\{\varepsilon_{i,t}\}_{i \in [n], t \in [T]}$;
\item for a fixed $t$ the random variables $\{\tilde{\varepsilon}_{i,t} \}_{i \in [n]}$ are independent;
\item for a fixed $i$:
\[
\mathcal{L}( \{ \tilde{\varepsilon}_{i,t}\}_{ t \in H_l } ) \,=\, \mathcal{L}( \{ \varepsilon_{i,t} \}_{ t \in H_l } ) \,=\, \mathcal{L}( \{ \varepsilon_{i,t} \}_{ t \in H_1 } ) \,\,\,\,\forall l \,\,\in [d_T],
\]
and the blocks $ \{ \tilde{\epsilon}_{i,t} \}_{ t \in H_1 },\ldots, \{ \tilde{\epsilon}_{i,t} \}_{ t \in H_{d_T} }$ are independent.
\end{itemize}
Here, we define $ \Lambda \,:=\, \{ H_1,H_1^{\prime},\ldots,H_{d_T},H_{d_T}^{\prime},R \}$ with
\begin{equation}
\label{eqn:intervals}
\begin{array}{lll}
H_j &=& \left\{ t \,:\, 1+ 2(j-1)c_T \leq t \leq (2j-1)c_T \right\},\,\,\, \\
H_j^{\prime} &=& \left\{ t \,:\, 1+ (2j-1)c_T \leq t \leq 2j c_T \right\}, \,\,j = 1,\ldots, d_T,\\
&& \,\,\,\,\text{and}\,\,\, R \,=\,\{ t \,:\, 2c_T d_T +1\,\leq t \leq T \}.
\end{array}
\end{equation}
We then let
\[
\tilde{Y}_{i,t}\, = \, X_{i,t}^{\prime} \theta(\tau)+\Pi_{i,t}(\tau) + \tilde{\varepsilon}_{i,t} G(X_{i,t})
\]
for all $i\in [n]$ and $t\in [T]$.
Furthermore, we define the scores $a_{i,t} \,=\, \tau - 1\{ Y_{i,t} \leq X_{i,t}^{\prime} \theta(\tau) + \Pi_{i,t}(\tau) \} $, and $\tilde{a}_{i,t} \,=\, \tau - 1\{ \widetilde{Y}_{i,t} \leq X_{i,t}^{\prime} \theta(\tau) + \Pi_{i,t}(\tau) \} $.
\subsection{Auxiliary lemmas for proof of Theorem \ref{thm_c} }
Throughout we use the notation from Section \ref{sec:proofs} and $(\hat{\beta}(\tau), \hat{\Pi}(\tau) )$ denotes the estimator defined in (\ref{eqn:prob_1}).
We begin by defining
\[
\displaystyle \hat{M}( \tilde{\beta},\tilde{ \Pi} ) \,=\, \frac{1}{nT}\sum_{i=1}^n \sum_{t=1}^{T} \left[ \rho_{\tau}(Y_{i,t} - X_{i,t}^{\prime} \tilde{\beta} - \tilde{ \Pi}_{i,t} ) - \rho_{\tau}(Y_{i,t} - X_{i,t}^{\prime} \beta(\tau) - \Pi_{i,t}(\tau) ) \right]
\]
and
\[
\displaystyle M(\tilde{\beta},\tilde{ \Pi}) \,=\, \mathbb{E}\left( \hat{M}( \tilde{\beta},\tilde{ \Pi} ) \big| \{ X_{i,t}\} \right).
\]
We also set
\begin{equation}
\label{mat_e}
\mathcal{E} \,:=\, \left\{ \underset{ 1\leq j\leq p }{\max}\, \,\vert\hat{\sigma}^2_{j}-1 \vert \,\leq \, \frac{1}{4}\right\},
\end{equation}
with the notation in Assumption 2.
We start by recalling a result from \cite{padilla2020adaptive} involving the behavior of $M$ locally around the true quantiles.
\begin{lemma}[Lemma 13 in \cite{padilla2020adaptive}]
\label{lem10}
With the notation and assumptions of Theorem \ref{thm_c} we have that
\[
\displaystyle M(\hat{\beta},\hat{ \Pi}) \,\geq \, \frac{c_0}{nT} \sum_{i=1}^n \sum_{t=1}^{T}\min\{ \vert q_{i,t} -\hat{q}_{i,t} \vert,(q_{i,t} -\hat{q}_{i,t} )^2 \} ,
\]
for some constant $c_0>0$.
\end{lemma}
We now proceed to construct a restricted set $K$ where the solution $(\hat{\beta}(\tau),\hat{\Pi}(\tau)) $ lies with high probability.
\begin{lemma}
\label{lem12}
Let
\[
\phi_{n,T} \,=\, \|\beta(\tau)\|_1 + \frac{1}{\sqrt{ nT \log( \max\{n,pc_T \} ) }} \|\Pi(\tau)\|_*,
\]
and
\[
\psi_{n,T}\,=\, \sqrt{ nT \log( \max\{n,pc_T \} ) } \|\beta(\tau)\|_1 \,+\,\|\Pi(\tau)\|_*.
\]
Then there exists a positive constant $C_0$ such that the event
\[
\mathcal{B} \,=\, \left\{ (\hat{\beta}(\tau),\hat{\Pi}(\tau)) \in K \right\}
\]
holds with probability at least
\[
1 - \gamma - \frac{16}{ n } - 8npT\left( \frac{1}{c_T} \right)^{\mu}- 2 n T \left( \frac{1}{c_T} \right)^{\mu} -2c_1\exp(-c_2 \max\{n,T\} + \log c_T ),
\]
with the notation from Lemma \ref{lem1}, and where
\[
K\,:=\,\left\{ (\tilde{\beta},\tilde{ \Pi}) \,:\, \|\tilde{\beta}\|_{1}\,\leq \, C_0 \phi_{n,T},\,\,\,\, \|\tilde{\Pi}\|_*\,\leq \, C_0 \psi_{n,T} \right\}
\]
and provided that
\[
\nu_1 \,=\, 18\sqrt{ \frac{ c_T \log( \max\{n,p c_T\} ) }{n d_T} } \left( \sqrt{n} + \sqrt{d_T} \right),
\]
and
\[
\nu_2\,=\,\frac{400 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right).
\]
\end{lemma}
\begin{proof}
First notice that by the proof Lemma \ref{lem1} we have that
\begin{equation}
\label{eqn:basic}
\begin{array}{lll}
0 &\leq &\displaystyle \underset{1 \leq j \leq p}{\max}\left \vert \frac{1}{nT} \sum_{i=1}^{n} \sum_{t=1}^T \frac{X_{i,t,j} a_{i,t} }{\hat{\sigma}_j } \right\vert \left[ \sum_{k=1}^{p}\hat{\sigma}_k\vert \theta_k(\tau) - \hat{\theta}_k(\tau) \vert \right] \,+\,
\\
& & \nu_{1}\left(\|\theta(\tau)\|_{1,n,T} - \|\hat{\theta}(\tau)\|_{1,n,T} \right) \,+\,\\
& & \displaystyle \left\vert \frac{1}{nT} \sum_{i=1}^{n}\sum_{t=1}^{T} a_{i,t} (\Pi_{i,t}(\tau)- \hat{\Pi}_{i,t}(\tau)) \right\vert \,+\, \nu_2 ( \| \Pi(\tau) \|_* - \| \hat{\Pi}(\tau) \|_* ). \\
\end{array}
\end{equation}
Therefore,
\[
\begin{array}{lll}
\displaystyle \frac{\nu_1}{2}\|\hat{\theta}(\tau)\|_{1,n,T} + \frac{\nu_2}{2} \| \hat{\Pi}(\tau) \|_* & \leq& \displaystyle \displaystyle \underset{1 \leq j \leq p}{\max}\left \vert \frac{1}{nT} \sum_{i=1}^{n} \sum_{t=1}^T \frac{X_{i,t,j} a_{i,t} }{\hat{\sigma}_j } \right\vert \left[ \sum_{k=1}^{p}\hat{\sigma}_k\vert \theta_k(\tau) - \hat{\theta}_k(\tau) \vert \right] \,+\, \\ & &\nu_{1}\left(\|\theta(\tau)\|_{1,n,T} - \frac{1}{2}\|\hat{\theta}(\tau)\|_{1,n,T} \right) \\
& &\displaystyle \,+\, \left\vert \frac{1}{ \nu_1 nT} \sum_{i=1}^{n}\sum_{t=1}^{T} a_{i,t} (\Pi_{i,t}(\tau)- \hat{\Pi}_{i,t}(\tau)) \right\vert \,+\, \nu_2 ( \| \Pi(\tau) \|_* - \frac{1}{2} \| \hat{\Pi}(\tau) \|_* ) \\
&\leq & \displaystyle 9 \sqrt{ \frac{ c_T \log( \max\{n,p c_T\} ) }{n d_T} } \left[ \sum_{k=1}^{p}\hat{\sigma}_k\vert \theta_k(\tau) - \hat{\theta}_k(\tau) \vert \right]\,+\,
\\ & &\displaystyle \nu_{1}\left(\|\theta(\tau)\|_{1,n,T} - \frac{1}{2}\|\hat{\theta}(\tau)\|_{1,n,T} \right) \,+\, \frac{200 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right)\| \Pi(\tau) - \hat{\Pi}(\tau) \|_* \\
& & \displaystyle \,+\, \nu_2 ( \| \Pi(\tau) \|_* - \frac{1}{2} \| \hat{\Pi}(\tau) \|_* ) \\
&\leq & \displaystyle 27\sqrt{ \frac{ c_T \log( \max\{n,p c_T\} ) }{n d_T} }(\sqrt{n} + \sqrt{d_T}) \| \theta(\tau)\|_{1,n,T} \\
& & \displaystyle \,+\, \frac{600 c_T }{n T } \left( \sqrt{n} + \sqrt{d_T} \right) \| \Pi(\tau) \|_* \\
& &
\end{array}
\]
where the second inequality holds by Lemma \ref{lem:penalty_tuning}, Lemma \ref{lem:latent_error}, and Assumption \ref{cond2},
with probability at least
\[
1 - \gamma - \frac{16}{ n } - 8npT\left( \frac{1}{c_T} \right)^{\mu}- 2 n T \left( \frac{1}{c_T} \right)^{\mu} -2c_1\exp(-c_2 \max\{n,T\} + \log c_T ),
\]
and third inequality holds by triangle inequality. The claim then follows.
\end{proof}
Next we combine the previous two results to arrive at an upper bound on the estimation error of the quantiles.
\begin{lemma}
\label{lem11}
Let $\eta$ such that
\[
\displaystyle \eta \,>\, \frac{3 \nu_2}{c_0}\|\Pi(\tau) \|_*
\]
with $c_0$ as in Lemma \ref{lem10}. Then
\begin{equation}
\label{eqn:uper}\begin{array}{l}
\displaystyle \mathbb{P}\left(\frac{1}{nT} \sum_{i=1}^n \sum_{t=1}^{T}\min\{ \vert q_{i,t} -\hat{q}_{i,t} \vert,(q_{i,t} -\hat{q}_{i,t} )^2 \} \geq
\eta\right) \\
\displaystyle \,\, \leq \, \mathbb{P}\left( \left\{ \underset{(\tilde{\beta},\tilde{ \Pi}) \in K }{\sup}\left[ M(\tilde{\beta},\tilde{ \Pi}) - \hat{M}(\tilde{\beta},\tilde{ \Pi}) \right] \geq \frac{c_0 \eta}{3} \right\} \cap \mathcal{E} \cap \mathcal{B} \right) \,+\, \mathbb{P}\left( \left\{\frac{\nu_1}{c_0} \|\beta(\tau) \|_{1,n,T} \geq \frac{c_0 \eta}{3}\right\} \cap \mathcal{E} \right) \\
\displaystyle \,\, \,+\, \gamma \,+\, \mathbb{P}(\mathcal{B}^c),
\end{array}
\end{equation}
with $\mathcal{E}$ as in (\ref{mat_e}), $\mathcal{B}$ as in Lemma \ref{lem12}, and $\gamma$ as in Assumption \ref{cond2}.
\end{lemma}
\begin{proof}
First, notice that
\[
\begin{array}{lll}
\displaystyle \frac{1}{nT} \sum_{i=1}^n \sum_{t=1}^{T}\min\{ \vert q_{i,t} -\hat{q}_{i,t} \vert,(q_{i,t} -\hat{q}_{i,t} )^2 \} & \leq& \displaystyle c_0^{-1}M( \hat{\beta}(\tau),\hat{\Pi} ) \\
&=& \displaystyle c_0^{-1}\left[ M( \hat{\beta}(\tau),\hat{\Pi} ) - \hat{M}( \hat{\beta}(\tau),\hat{\Pi} ) + \hat{M}( \hat{\beta}(\tau),\hat{\Pi} ) \right]\\
& \leq & \displaystyle c_0^{-1} \left[ M( \hat{\beta}(\tau),\hat{\Pi} ) - \hat{M}( \hat{\beta}(\tau),\hat{\Pi} ) \right] \,+\,\\
& & \displaystyle \nu_1 c_0^{-1} \left[ \|\beta(\tau) \|_{1,n,T} -\|\hat{\beta}(\tau) \|_{1,n,T} \right] \,+\,\\
& & \displaystyle \nu_2 c_0^{-1} \left[ \|\Pi(\tau) \|_{*} -\|\hat{\Pi}(\tau) \|_{*} \right] \\
& \leq& \displaystyle c_0^{-1}\left[ M( \hat{\beta}(\tau),\hat{\Pi} ) - \hat{M}( \hat{\beta}(\tau),\hat{\Pi} ) \right] \,+\,\\
& & \displaystyle \nu_1 c_0^{-1} \|\beta(\tau) \|_{1,n,T}\,+\, \frac{\nu_2}{c_0}\|\Pi(\tau)\|_*,
\end{array}
\]
where the first inequality follows from Lemma \ref{lem10} and the second by optimality of $(\hat{\beta}(\tau),\hat{\Pi}(\tau))$. Therefore, by Lemma \ref{lem12} and Assumption \ref{cond2},
\[
\begin{array}{l}
\displaystyle \mathbb{P}\left(\frac{1}{nT} \sum_{i=1}^n \sum_{t=1}^{T}\min\{ \vert q_{i,t} -\hat{q}_{i,t} \vert,(q_{i,t} -\hat{q}_{i,t} )^2 \} \geq
\eta\right) \\
\displaystyle \,\, \leq \, \mathbb{P}\left( \left\{ \underset{(\tilde{\beta},\tilde{ \Pi}) \in K }{\sup}\left[ M(\tilde{\beta},\tilde{ \Pi}) - \hat{M}(\tilde{\beta},\tilde{ \Pi}) \right] \geq \frac{c_0 \eta}{3} \right\} \cap \mathcal{E} \cap \mathcal{B} \right) \,+\, \mathbb{P}\left( \left\{\frac{\nu_1}{c_0} \|\beta(\tau) \|_{1,n,T} \geq \frac{c_0 \eta}{3}\right\} \cap \mathcal{E} \right) \\
\displaystyle \,\, \,+\, \mathbb{P}(\mathcal{E}^c) \,+\, \mathbb{P}(\mathcal{B}^c),
\end{array}
\]
and the claim follows.
\end{proof}
We now proceed to give an upper bound on the second term in the right hand side of (\ref{eqn:uper}).
\begin{lemma}
\label{lem13}
It holds that
\[
\mathbb{P}\left( \left\{\frac{\nu_1}{c_0} \|\beta(\tau) \|_{1,n,T} \geq \frac{c_0 \eta}{3}\right\} \cap \mathcal{E} \right) \,= \,0,
\]
provided that
\[
\eta \,>\, \frac{15\nu_1}{4c_0} \|\beta(\tau) \|_{1}.
\]
\end{lemma}
\begin{proof}
The claim follows since in the event $\mathcal{E}$ it holds that $\|\beta(\tau) \|_{1,n,T} \leq 5\|\beta(\tau) \|_{1}/4$.
\end{proof}
We now proceed to control the first term in the right hand side of (\ref{eqn:uper}).
\begin{lemma}
\label{lem14}
With the notation from before we have that
\[
\begin{array}{lll}
\mathbb{P}\left( \left\{ \underset{(\tilde{\beta},\tilde{ \Pi}) \in K }{\sup}\left[ M(\tilde{\beta},\tilde{ \Pi}) - \hat{M}(\tilde{\beta},\tilde{ \Pi}) \right] \geq \frac{c_0 \eta}{3} \right\} \cap \mathcal{E} \cap \mathcal{B} \right) & \leq& \displaystyle \frac{\tilde{C} }{\eta}\left[ \frac{ \phi_{n,T} \sqrt{c_T\log p} }{\sqrt{ nd_T}} \, +\,\frac{\psi_{n,T} ( \sqrt{n} +\sqrt{d_T} )}{ nd_T } \right]\\
& &\,+\, 2 n T \left( \frac{1}{c_T} \right)^{\mu},
\end{array}
\]
for a positive constant $\tilde{C}$.
\end{lemma}
\begin{proof}
First, we notice that
\[
\begin{array}{l}
\mathbb{P}\left( \left\{ \underset{(\tilde{\beta},\tilde{ \Pi}) \in K }{\sup}\left[ M(\tilde{\beta},\tilde{ \Pi}) - \hat{M}(\tilde{\beta},\tilde{ \Pi}) \right] \geq \frac{c_0 \eta}{3} \right\} \cap \mathcal{E} \cap \mathcal{B} \right)\\
\, \leq\, \mathbb{P}\left( \left\{\underset{(\tilde{\beta},\tilde{ \Pi}) \in K }{\sup}\left[ M(\tilde{\beta},\tilde{ \Pi}) - \hat{M}(\tilde{\beta},\tilde{ \Pi}) \right] \geq \frac{c_0 \eta}{3} \right\} \,\bigg| \mathcal{E}\right) \mathbb{P}(\mathcal{E}). \\
\end{array}
\]
Next let
\[
\begin{array}{lll}
U_1(X)& :=& \mathbb{P}\left( \underset{(\tilde{\beta},\tilde{ \Pi}) \in K }{\sup}\left[ M(\tilde{\beta},\tilde{ \Pi}) - \hat{M}(\tilde{\beta},\tilde{ \Pi}) \right] \geq \frac{c_0 \eta}{3} \bigg| \{X_{i,t}\},\mathcal{E} \right).
\end{array}
\]
Using the notation from Section \ref{sec:proofs}, we define
$t_{l,m} = 2c_T l + m$,
for $l=1,\ldots,d_T -1$ and $m=1,\ldots,c_T$. We also set
\[
\begin{array}{lll}
Z_{i,t }(\tilde{\beta},\tilde{ \Pi}) &=& \rho_{\tau}\left( \tilde{Y}_{i,t} - X_{i,t}^{\prime } \tilde{\beta} - \tilde{ \Pi}_{i,t} \right) - \rho_{\tau}\left( \tilde{Y}_{i,t} - X_{i,t}^{\prime } \beta(\tau) - \Pi_{i,t}(\tau) \right)\\
&=& \rho_{\tau}\left( \varepsilon_{i,t}G(X_{i,t}) + X_{i,t}^{\prime } (\beta-\tilde{\beta}) + (\Pi_{i,t}- \tilde{\Pi}_{i,t} ) \right) - \rho_{\tau}\left( \varepsilon_{i,t}G(X_{i,t}) \right).
\end{array}
\]
Hence by Assumption \ref{cond1}, conditioning on $X_{i,t}$ and $\Pi_{i,t}$, $ Z_{i,t }(\tilde{\beta},\tilde{ \Pi}) $ belongs to the sigma algebra generated by $\varepsilon_{i,t}$.
Then by Lemma 4.3 from \cite{yu1994rates},
\[
\begin{array}{l}
U_1(X)\\
\, \leq \,\displaystyle 2\mathbb{P}\left( \frac{ C_1}{c_T d_T n} \sum_{m=1}^{c_T} \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \sum_{l=1}^{d_T-1} \,\,\,\,\,\,\left[\mathbb{E}\left(Z_{i,t_{l,m}}(\tilde{\beta},\tilde{ \Pi}) \,\big| \{X_{i,t}\}\right) - Z_{i,t_{l,m}}(\tilde{\beta},\tilde{ \Pi}) \right]\right\} \geq \frac{c_0 \eta}{9} \,\bigg| \{X_{i,t}\}, \mathcal{E}\right) \\
\,\, \,\,\,\, \,+\,
\displaystyle \mathbb{P}\left(\frac{ C_1}{c_T d_T n}\sum_{t^{\prime} \in R}^{ } \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \left[ \mathbb{E}\left(Z_{i, t^{\prime} }(\tilde{\beta},\tilde{ \Pi}) \,\big| \{X_{i,t}\}\right) \,-\, Z_{i, t^{\prime} }(\tilde{\beta},\tilde{ \Pi}) \right] \right\} \geq \frac{c_0 \eta}{9} \,\bigg| \{X_{i,t}\}, \mathcal{E} \right)\\
\,\,\,\,\, \,+\, 2 n T \left( \frac{1}{c_T} \right)^{\mu}
\end{array}
\]
for a constant $C_1>0$. Hence, by Markov's inequality and Lemma 2.3.1 in \cite{wellner2013weak} (symmetrization), we have for $\{ \xi_{i,t}\}$ independent Rademacher variables
with $\{ \xi_{i,t}\} \,\perp \!\!\! \perp\, \{\tilde{Y}_{i,t}\} \,\big| \, \{X_{i,t}\}$ that
\begin{equation}
\label{eqn:upper_bound}
\begin{array}{l}
U_1(X) \\
\leq \,\displaystyle \frac{18}{c_0 \eta} \frac{ C_1}{c_T d_T n} \sum_{m=1}^{c_T}\mathbb{E}\left( \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \sum_{l=1}^{d_T-1} \left[\mathbb{E}\left(Z_{i,t_{l,m}}(\tilde{\beta},\tilde{ \Pi}) \,\bigg| \{X_{i,t}\}\right) - Z_{i,t_{l,m}}(\tilde{\beta},\tilde{ \Pi}) \right]\right\} \,\bigg| \{X_{i,t}\},\mathcal{E} \right) \\
\displaystyle \,\, \,\,\,\, \,+\,\frac{9}{c_0 \eta} \frac{ C_1}{c_T d_T n}\sum_{ t^{\prime} \in R }^{ } \mathbb{E}\left( \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \left[ \mathbb{E}\left(Z_{i, t^{\prime} }(\tilde{\beta},\tilde{ \Pi}) \,\bigg| \{X_{i,t}\}\right) \,-\, Z_{i, t^{\prime} }(\tilde{\beta},\tilde{ \Pi}) \right] \right\} \,\bigg| \{X_{i,t}\},\mathcal{E} \right)\\
\,\, \,\,\,\, \,+\,2 n T \left( \frac{1}{c_T} \right)^{\mu}\\
\displaystyle \leq \,\, \,\,\,\,\frac{36}{c_0 \eta} \frac{ C_1}{c_T d_T n} \sum_{m=1}^{c_T} \mathbb{E}\left( \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \sum_{l=1}^{d_T-1} \xi_{i,t_{l,m}} Z_{i,t_{l,m}}(\tilde{\beta},\tilde{ \Pi}) \right\} \,\bigg| \{X_{i,t}\},\mathcal{E}\right) \\
\displaystyle \,\, \,\,\,\, \,+\,\frac{18}{c_0 \eta} \frac{ C_1}{c_T d_T n}\sum_{ t^{\prime}\in R }^{} \mathbb{E}\left( \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \xi_{i, t^{\prime}} Z_{i, t^{\prime} }(\tilde{\beta},\tilde{ \Pi}) \right\} \,\bigg| \{X_{i,t}\},\mathcal{E}\right) \\
\,\, \,\,\,\, \,+\, 2 n T \left( \frac{1}{c_T} \right)^{\mu},\\
\end{array}
\end{equation}
Therefore, from Ledoux-Talagrand's inequality
\begin{equation}
\label{eqn:upper_bound2}
\begin{array}{lll}
U_1(X) &\leq &\displaystyle \frac{36}{c_0 \eta} \frac{ C_1}{c_T d_T n}\cdot\\
& & \displaystyle \sum_{m=1}^{c_T}\mathbb{E}\left( \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \sum_{l=1}^{d_T-1} \xi_{i,t_{l,m}}\left( X_{i,t_{l,m}}^{\prime}( \tilde{\beta} - \beta(\tau) ) + \tilde{ \Pi}_{i,t_{l,m}} - \Pi_{i,t_{l,m}}(\tau) \right) \right\} \,\bigg| \{X_{i,t}\},\mathcal{E}\right) \\
& &
\displaystyle \,+\, \frac{18}{c_0 \eta} \frac{ C_1}{c_T d_T n}\sum_{t^{\prime} \in R}^{} \mathbb{E}\left( \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \xi_{i, t^{\prime}} \left( X_{i, t^{\prime}}^{\prime}( \tilde{\beta} - \beta(\tau) ) + \tilde{ \Pi}_{i, t^{\prime}} - \Pi_{i, t^{\prime}}(\tau) \right) \right\} \,\bigg| \{X_{i,t}\},\mathcal{E} \right) \\
& &\displaystyle \,+\, 2 n T \left( \frac{1}{c_T} \right)^{\mu}\\
& = & \displaystyle U_2(X) + U_3(X) + 2 n T \left( \frac{1}{c_T} \right)^{\mu}
\end{array}
\end{equation}
Next we proceed to bound $U_2(X)$ and $U_3(X)$. To bound $U_2(X)$ notice that for some positive constants $C$ and $C_3$ we have that
\begin{equation}
\label{eqn:upper_bound3}
\begin{array}{lll}
\displaystyle U_2(X)&\leq &\displaystyle \frac{36}{c_0 \eta} \frac{ C_1}{c_T d_T n}\, \sum_{m=1}^{c_T}\mathbb{E}\left( \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \sum_{l=1}^{d_T-1} \xi_{i,t_{l,m}}\left( X_{i,t_{l,m}}^{\prime}( \tilde{\beta} - \beta(\tau) ) \right) \right\} \,\bigg| \{X_{i,t}\},\mathcal{E}\right)\\
& & \displaystyle \,+\, \frac{18}{c_0 \eta} \frac{ C_1}{c_T d_T n}\, \sum_{m=1}^{c_T}\mathbb{E}\left( \underset{ (\tilde{\beta},\tilde{ \Pi}) \in K }{\sup} \left\{ \sum_{i=1}^{n} \sum_{l=1}^{d_T-1} \xi_{i,t_{l,m}}\left( \tilde{ \Pi}_{i,t_{l,m}} - \Pi_{i,t_{l,m}}(\tau) \right) \right\} \,\bigg| \{X_{i,t}\},\mathcal{E}\right)\\
&\leq &\displaystyle \frac{36}{c_0 \eta} \frac{ C_1}{c_T d_T n}\, \sum_{m=1}^{c_T} 2C_0 \phi_{n,T}\mathbb{E}\left( \underset{ \tilde{\beta} \,:\, \| \tilde{\beta} \|_1 \leq 1 }{\sup} \left\{ \sum_{i=1}^{n} \sum_{l=1}^{d_T-1} \xi_{i,t_{l,m}}\, X_{i,t_{l,m}}^{\prime}\tilde{\beta} \right\} \,\bigg| \{X_{i,t}\},\mathcal{E}\right)\,+\,\\
& & \displaystyle \,+\, \frac{18}{c_0 \eta} \frac{ C_1}{c_T d_T n}\, \sum_{m=1}^{c_T}\mathbb{E}\left( 2 \left\|\{\xi_{i,t_{l,m}}\}_{i \in [n], l \in [d_T-1] } \right\|_2 \,\underset{ \tilde{\Pi} \,:\, \|\tilde{ \Pi}\|_* \leq C_0 \psi_{n,T} }{\sup} \|\tilde{ \Pi}\|_* \,\bigg| \{X_{i,t}\},\mathcal{E}\right)\\
& \leq &\displaystyle \frac{36}{c_0 \eta} \frac{ C_1}{c_T d_T n}\, \sum_{m=1}^{c_T} 2C_0 \phi_{n,T}\mathbb{E}\left( C \sqrt{\log p} \underset{j=1,\ldots,p}{\max} \sqrt{ \sum_{i=1}^{n} \sum_{l=1}^{d_T-1} X_{i,t_{l,m},j}^2 } \,\bigg| \{X_{i,t}\},\mathcal{E}\right)\,+\,\\
& &\displaystyle \,+\, \frac{18}{c_0 \eta} \frac{ C_1}{c_T d_T n}\, \sum_{m=1}^{c_T} 2C_0 \psi_{n,T} C \left( \sqrt{n} + \sqrt{d_T} \right)\\
& \leq & \displaystyle \frac{C_3}{\eta}\left[ \frac{ \phi_{n,T} \sqrt{c_T\log p} }{\sqrt{ nd_T}} \, +\,\frac{\psi_{n,T} ( \sqrt{n} +\sqrt{d_T} )}{ nd_T } \right],
\end{array}
\end{equation}
where the third inequality follows from the proof of Theorem 2.4 in \cite{rigollet2015high} and Theorem 3.4 from \cite{chatterjee2015matrix}, and the fourth inequality follows from the definition of $\mathcal{E}$.
Similarly,
\begin{equation}
\label{eqn:upper_bound4}
\begin{array}{lll}
U_3(\tilde{X}) & \leq& \displaystyle \frac{C_3}{\eta}\left[ \frac{ \phi_{n,T} \sqrt{c_T\log p} }{n\sqrt{ d_T}} \, +\,\frac{\psi_{n,T} ( \sqrt{n} +1)}{ nd_T }\right].
\end{array}
\end{equation}
Combining (\ref{eqn:upper_bound2}), (\ref{eqn:upper_bound3}) and (\ref{eqn:upper_bound4}) the claim follows.
\end{proof}
\subsection{Proof of Theorem \ref{thm_c}}
The proof follows from Lemmas \ref{lem11}--\ref{lem14} by setting
\[
\eta\,\asymp\, m_n \left[\frac{ \phi_{n,T} \sqrt{c_T\log p} }{n\sqrt{ d_T}} \, +\,\frac{\psi_{n,T} ( \sqrt{n} +1)}{ nd_T }\right],
\]
for any sequence $m_n$ satisfying $m_{n} \rightarrow \infty$.
\newpage
\begin{center}
\begin{longtable}{llp{18.855em}ccc}
\caption{Firm Characteristics Construction.\label{Table-names}}\\
\toprule
Characteristics & Name & \multicolumn{1}{l}{Construction}\tabularnewline
\hline
acc & Working capital accruals & Annual income before extraordinary items (ib) minus operating cash
flows (oancf) divided by average total assets (at) \tabularnewline
agr & Asset growth & \multicolumn{1}{l}{Annual percent change in total assets (at)}\tabularnewline
beta & Beta & Estimated market beta from weekly returns and equal weighted market
returns for 3 years \tabularnewline
bm & Book-to-market & Book value of equity (ceq) divided by end of fiscal year-end market
capitalization \tabularnewline
chinv & Change in inventory & Change in inventory (inv) scaled by average total assets (at) \tabularnewline
chmom & Change in 6-month momentum & Cumulative returns from months t-6 to t-1 minus months t-12 to t-7 \tabularnewline
dolvol & Dollar trading volume & Natural log of trading volume times price per share from month t-2 \tabularnewline
dy & Dividend to price & Total dividends (dvt) divided by market capitalization at fiscal year-end \tabularnewline
egr & Earnings announcement return & Annual percent change in book value of equity (ceq) \tabularnewline
ep & Earnings to price & Annual income before extraordinary items (ib) divided by end of fiscal
year market cap \tabularnewline
gma & Gross profitability & Revenues (revt) minus cost of goods sold (cogs) divided by lagged
total assets (at) \tabularnewline
idiovol & Idiosyncratic return volatility & Standard deviation of residuals of weekly returns on weekly equal
weighted market returns for 3 years prior to month end \tabularnewline
ill & Illiquidity (Amihud) & Average of daily (absolute return / dollar volume).\tabularnewline
invest & Capital expenditures and inventory & Annual change in gross property, plant, and equipment (ppegt) + annual
change in inventories (invt) all scaled by lagged total assets (at)\tabularnewline
lev & Leverage & Annual change in gross property, plant, and equipment (ppegt) + annual
change in inventories (invt) all scaled by lagged total assets (at)\tabularnewline
lgr & Growth in long-term debt & Annual percent change in total liabilities (lt)\tabularnewline
mom1m & 1-month momentum & 1-month cumulative return\tabularnewline
mom6m & 6-month momentum & 5-month cumulative returns ending one month before month end\tabularnewline
mve & Size & Natural log of market capitalization at end of month t-1\tabularnewline
operprof & Operating profitability & Revenue minus cost of goods sold - SG\&A expense - interest expense
divided by lagged common shareholders' equity\tabularnewline
range & Range of stock price & Monthly average of daily price range: (high-low)/((high+low)/2) (alternative
measure of volatility)\tabularnewline
retvol & Return volatility & Standard deviation of daily returns from month t-1\tabularnewline
roaq & Return on assets & Income before extraordinary items (ibq) divided by one quarter lagged
total assets (atq)\tabularnewline
roeq & Return on equity & Earnings before extraordinary items divided by lagged common shareholders'
equity\tabularnewline
sue & Unexpected quarterly earnings & Unexpected quarterly earnings divided by fiscal-quarter-end market
cap. Unexpected earnings is I/B/E/S actual earnings minus median forecasted
earnings if available, else it is the seasonally differenced quarterly
earnings before extraordinary items from Compustat quarterly file\tabularnewline
turn & Share turnover & Average monthly trading volume for most recent 3 months scaled by
number of shares outstanding in current month\tabularnewline
\hline
\end{longtable}
\end{center}
\vspace{-1cm}
Note: Estimated under different values of turning parameter $ \nu_{2}$, when $ \nu_{1}=10^{-5}$ is fixed. The results are
reported for quantiles 10\%, 50\% and 90\%.