James-Stein Type Estimators in Large Samples with Application to the Least Absolute Deviations Estimator
We explore the extension of James-Stein type estimators in a direction that enables them to preserve their superiority when the sample size goes to infinity. Instead of shrinking a base estimator towards a fixed point, we shrink it towards a data-dependent point. We provide an analytic expression for the asymptotic risk and bias of James-Stein type estimators shrunk towards a data-dependent point and prove that they have smaller asymptotic risk than the base estimator. Shrinking an estimator toward a data-dependent point turns out to be equivalent to combining two random variables using the James-Stein rule. We propose a general combination scheme which includes random combination (the James-Stein combination) and the usual nonrandom combination as special cases. As an example, we apply our method to combine the Least Absolute Deviations estimator and the Least Squares estimator. Our simulation study indicates that the resulting combination estimators have desirable finite sample properties when errors are drawn from symmetric distributions. Finally, using stock return data we present some empirical evidence that the combination estimators have the potential to improve out-of-sample prediction in terms of both mean square error and mean absolute error.
|Date of creation:||01 May 2000|
|Contact details of provider:|| Postal: 9500 Gilman Drive, La Jolla, CA 92093-0508|
Phone: (858) 534-3383
Fax: (858) 534-7040
Web page: http://www.escholarship.org/repec/ucsdecon/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bates, Charles E. & White, Halbert, 1993. "Determination of Estimators with Minimum Asymptotic Covariance Matrices," Econometric Theory, Cambridge University Press, vol. 9(04), pages 633-648, August.