Improvement in Finite-Sample Properties of GMM-Based Wald Tests
Qihui Chen, Yu Ren
Computational Statistics
#002162 20131014 (published)
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-misspecied factor model, the shrinkage method can provide a good estimator for the weighting matrix, and hence improve the nite-sample performance of the GMM-based Wald tests.
Keywords: Generalized method of moments, Wald tests, Finite-sample properties, Covariance matrix, Shrinkage method

Download full text