Improvement in finite-sample properties of GMM-based Wald tests

Qihui Chen and Yu Ren ()

Computational Statistics, 2013, vol. 28, issue 2, 735-749

Abstract: GMM-based Wald tests tend to overreject when used for small samples, mainly due to inaccurate estimation of the weighting matrix. This article proposes applying the shrinkage method to address this problem. Using a possibly-misspecified factor model, the shrinkage method can provide a good estimator for the weighting matrix, and hence improve the finite-sample performance of the GMM-based Wald tests. Copyright Springer-Verlag 2013

Keywords: Generalized method of moments; Wald tests; Finite-sample properties; Covariance matrix; Shrinkage method (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s00180-012-0326-0

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