Consistent co‐trending rank selection when both stochastic and non‐linear deterministic trends are present

Summary

This paper proposes a model‐free co‐trending rank selection procedure based on the eigenstructure of a multivariate version of the von Neumann ratio in the presence of both stochastic and non‐linear deterministic trends. Our selection criteria can be easily implemented, and the consistency of the rank estimator is established under very general conditions. Simulation results suggest good finite sample properties of the new rank selection criteria.