Computational Statistics

, Volume 28, Issue 2, pp 735–749

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

Original Paper
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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.

Keywords

Generalized method of moments Wald tests Finite-sample properties Covariance matrix Shrinkage method 

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Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CaliforniaSan DiegoUSA
  2. 2.WISE, MOE Key Lab of Econometrics and Fujian Key Lab of StatisticsXiamen UniversityFujianChina

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