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Generalized Least Squares Model Averaging

Listed author(s):
  • Qingfeng Liu


    (Otaru University of Commerce)

  • Ryo Okui


    (Institute of Economic Research, Kyoto University)

  • Arihiro Yoshimura


    (Kyoto University)

This paper proposes a method of averaging generalized least squares (GLS) estimators for linear regression models with heteroskedastic errors. We derive two kinds of Mallows' Cp criteria, calculated from the estimates of the mean of the squared errors of the tted value based on the averaged GLS estimators, for this class of models. The averaging weights are chosen by minimizing Mallows' Cp criterion. We show that this method achieves asymptotic optimality. It is also shown that the asymptotic optimality holds even when the variances of the error terms are estimated and the feasible generalized least squares (FGLS) estimators are averaged. Monte Carlo simulations demonstrate that averaging FGLS estimators yields an estimate that has a remarkably lower level of risk compared with averaging least squares estimators in the presence of heteroskedasticity, and it also works when heteroskedasticity is not present, in nite samples.

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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 855.

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Length: 33pages
Date of creation: Mar 2013
Handle: RePEc:kyo:wpaper:855
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