Preliminary-Test Estimation of the Regression Scale Parameter When the Loss Function is Asymmetric

Judith A. Giles and David E. A. Giles

No 263005, Department of Economics Discussion Papers from University of Canterbury - New Zealand

Abstract: Various studies have considered the risk properties under Quadratic loss, of estimators of the scale parameter after a preliminary test for exact linear restrictions on the regression coefficients. This loss function is symmetric though, arguably, under-estimation of the scale has greater consequences than over-estimation. In this paper we consider the LINEX loss function, which allows for an asymmetric penalty. We derive the exact risk of estimators of the error variance after a pre-test of exact restrictions and we numerically evaluate the derived expressions. The results are compared with those under quadratic loss so that the effects of the asymmetry can be ascertained.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 30
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Persistent link: https://EconPapers.repec.org/RePEc:ags:canzdp:263005

DOI: 10.22004/ag.econ.263005

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