A simple reformulation of the common correlated effects model

We study estimation of factor models in a fixed-T panel data setting and significantly relax the common correlated effects (CCE) assumptions pioneered by Pesaran (2006) and used in many papers since. This allows us to make three important contributions. First, our assumptions greatly extend the applicability of the CCEP estimator and allow it to be generalized in empirically relevant ways. Second, our assumptions considerably simplify the asymptotic analysis of the estimators. Third, we provide a straightforward asymptotic normality result that accounts for the sampling variability of the sample means of the explanatory variables, which is important in the fixed-T setting.