Spectral Density Bandwidth Choice and Prewhitening in the Generalized Method of Moments Estimators for the Asset Pricing Model

Min-Hsien Chiang () and Chihwa Kao ()
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Min-Hsien Chiang: National Cheng Kung University

Economics Bulletin, 2005, vol. 3, issue 10, pages 1-13

Abstract: This paper investigates the performances of GMM estimates using kernel methods with and without prewhitening and the VARHAC method in a representative agent exchange economy. A Monte Carlo study is conducted to evaluate the issues of estimating the spectral density functions, e.g., parametric vs. nonparametric, data-based bandwidth selection, and prewhitening procedures. The Monte Carlo results show that kernel methods with prewhitening procedure outperform others in terms of statistical inferences. The deviations from true parameter values, however, are larger for kernel methods with prewhitening procedure. Therefore, there exists efficiency/bias trade-off when choosing HAC covariance estimation method.

Keywords: Asset Pricing; GMM; Kernel; Prewhitening; VARHAC (search for similar items in EconPapers)
JEL-codes: C1 G1 (search for similar items in EconPapers)
Date: 2005 Written 2005-02-24
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Related works:
Working Paper: Spectral Density Bandwidth Choice and Prewhitening in the Generalized Method of Moments Estimators for the Asset Pricing Models (2002)
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