Pre-Test Estimation in a Regression Model with a Misspecified Covariance Matrix

K. V Albertson

No 263076, Department of Economics Discussion Papers from University of Canterbury - New Zealand

Abstract: We consider the effects of incorrectly assuming a scalar error covariance matrix in a linear regression model in the context of a pre-test for linear restrictions on the coefficients. Because of this misspecification the (true) size and power of the pre-test may differ from their assumed values, distorting the pre-test estimator risk function towards that of one or other of its component estimators. The restricted and pre-test estimators may dominate the unrestricted estimator over a larger, or smaller, part of the parameter space, compared to the case with a correctly specified model.

Keywords: Agribusiness; Financial Economics (search for similar items in EconPapers)
Pages: 27
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Persistent link: https://EconPapers.repec.org/RePEc:ags:canzdp:263076

DOI: 10.22004/ag.econ.263076

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