Efficient estimation of regression models with user-specified parametric model for heteroskedasticty

Saraswata Chaudhuri and Eric Renault
Additional contact information
Eric Renault: Department of Economics, University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Several modern textbooks report that, thanks to the availability of heteroskedasticity robust standard errors, one observes the near-death of Weighted Least Squares (WLS) in cross-sectional applied work. We argue in this paper that it is actually possible to estimate regression parameters at least as precisely as Ordinary Least Squares (OLS) and WLS, even when using a misspeci ed parametric model for conditional heteroskedasticity. Our analysis is valid for a general regression framework (including Instrumental Variables and Nonlinear Regression) as long as the regression is de ned by a conditional expectation condition. The key is to acknowledge, as first pointed out by Cragg (1992) that, when the user-specific heteroskedasticity model is misspecified, WLS has to be modified depending on a choice of some univariate target for estimation. Moreover, targeted WLS can be improved by properly combining moment equations for OLS and WLS respectively. Efficient GMM must be regularized to take into account the possible multicollinearity of estimating equations when errors terms are actually nearly homoscedastic.

Keywords: asymptotic optimality; misspecification; nuisance parameters; weighted least squares JEL Codes: C12; C13; C21 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/w ... rp_1473_-renault.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1473

Access Statistics for this paper

More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash ().