The Power of Hessian and Outer Product Based Wald and LM Tests
N.E. Savin () and
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N.E. Savin: University of Iowa
Working Papers from University of Iowa, Department of Economics
Wald and Lagrange Multiplier (LM) tests can be based on three commonly used estimators of the information matrix : the expectation of the Hessian matric, the Hessian matrix without the expectation operator or the outer product (OP) matrix of the score vectors. Although the Wald and LM tests are asymptotically equivalent, they typically have different powers in finite samples. We prove that Hessian based tests are superior to OP based tests in the normal linear regression model.
Keywords: STATISTICS; MATHEMATICS; ECONOMETRICS (search for similar items in EconPapers)
JEL-codes: C12 C15 C52 (search for similar items in EconPapers)
Pages: 20 pages
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Persistent link: https://EconPapers.repec.org/RePEc:uia:iowaec:97-02
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