A Comparison of Marginal Likelihood Based and Approximate Point Optimal Tests for Random Regression Coefficients in the Presence of Autocorrelation

Shahidur Rahman and Maxwell L. King

No 267434, Department of Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: With respect to testing linear regression disturbances, two methods of test construction have recently been found to work well. These are traditional asymptotic tests based on the marginal likelihood or equivalently the likelihood of the maximal invariant and point optimal or approximate point optimal (APO) tests. The former approach has been found to work well for testing for random regression coefficients in the presence of autocorrelated errors. This paper constructs APO invariant (APOI) tests for this testing problem and extends the previous Monte Carlo study to include APOI tests. We conclude that for this testing problem, the extra work required to apply APOI tests hardly seems worthwhile, particularly for larger sample sizes.

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Pages: 22
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Persistent link: https://EconPapers.repec.org/RePEc:ags:monebs:267434

DOI: 10.22004/ag.econ.267434

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