Model averaging in a multiplicative heteroscedastic model

In recent years, the body of literature on frequentist model averaging in econometrics has grown significantly. Most of this work focuses on models with different mean structures but leaves out the variance consideration. In this article, we consider a regression model with multiplicative heteroscedasticity and develop a model averaging method that combines maximum likelihood estimators of unknown parameters in both the mean and variance functions of the model. Our weight choice criterion is based on a minimization of a plug-in estimator of the model average estimator’s squared prediction risk. We prove that the new estimator possesses an asymptotic optimality property. Our investigation of finite-sample performance by simulations demonstrates that the new estimator frequently exhibits very favorable properties compared with some existing heteroscedasticity-robust model average estimators. The model averaging method hedges against the selection of very bad models and serves as a remedy to variance function mis-specification, which often discourages practitioners from modeling heteroscedasticity altogether. The proposed model average estimator is applied to the analysis of two data sets on housing and economic growth.

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Work Title Model averaging in a multiplicative heteroscedastic model
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Open Access
Creators
  1. Shangwei Zhao
  2. Yanyuan Ma
  3. Alan T.K. Wan
  4. Xinyu Zhang
  5. Shouyang Wang
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. Econometric Reviews
Publication Date November 25, 2020
Publisher Identifier (DOI)
  1. https://doi.org/10.1080/07474938.2020.1770995
Deposited November 15, 2021

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  • Added Model_averaging_in_a_multiplicative_heteroscedastic_model.pdf
  • Added Creator Shangwei Zhao
  • Added Creator Yanyuan Ma
  • Added Creator Alan T.K. Wan
  • Added Creator Xinyu Zhang
  • Added Creator Shouyang Wang
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