Big data analytics: a new perspective

Alexander Chudik, George Kapetanios and Mohammad Pesaran

No 268, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Model specification and selection are recurring themes in econometric analysis. Both topics become considerably more complicated in the case of large-dimensional data sets where the set of specification possibilities can become quite large. In the context of linear regression models, penalised regression has become the de facto benchmark technique used to trade off parsimony and fit when the number of possible covariates is large, often much larger than the number of available observations. However, issues such as the choice of a penalty function and tuning parameters associated with the use of penalised regressions remain contentious. In this paper, we provide an alternative approach that considers the statistical significance of the individual covariates one at a time, whilst taking full account of the multiple testing nature of the inferential problem involved. We refer to the proposed method as One Covariate at a Time Multiple Testing (OCMT) procedure. The OCMT has a number of advantages over the penalised regression methods: It is based on statistical inference and is therefore easier to interpret and relate to the classical statistical analysis, it allows working under more general assumptions, it is computationally simple and considerably faster, and it performs better in small samples for almost all of the five different sets of experiments considered in this paper. Despite its simplicity, the theory behind the proposed approach is quite complicated. We provide extensive theoretical and Monte Carlo results in support of adding the proposed OCMT model selection procedure to the toolbox of applied researchers.

JEL-codes: C52 C55 (search for similar items in EconPapers)
Pages: 83 pages
Date: 2016-02-28
New Economics Papers: this item is included in nep-ecm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Big Data Analytics: A New Perspective (2016)
Working Paper: Big Data Analytics: A New Perspective (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:268

DOI: 10.24149/gwp268

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