A New Robust and Most Powerful Test in the Presence of Local Misspeci cation

Montes-Rojas, G., Bera, A.K. & Sosa-Escudero, W. (2016). A New Robust and Most Powerful Test in the Presence of Local Misspeci cation. Communications in Statistics - Theory and Methods, doi: 10.1080/03610926.2016.1177077

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Abstract

This paper proposes a new test that is consistent, achieves correct asymptotic size and is locally most powerful under local misspecification, and when any square-root-of-n-estimator of the nuisance parameters is used. The new test can be seen as an extension of the Bera and Yoon (1993) procedure that deals with non-ML estimation, while preserving its optimality properties. Similarly, the proposed test extends Neyman's (1959) C(a) test to handle locally misspecified alternatives. A Monte Carlo study investigates the finite sample performance in terms of size, power and robustness to misspecification.

Item Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in Communications in Statistics - Theory and Methods on 5/8/16, available online: http://dx.doi.org/10.1080/03610926.2016.1177077
Uncontrolled Keywords: Specification testing, Rao's score test, Local misspecification, Neyman's C(α),
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Social Sciences > Department of Economics
URI: http://openaccess.city.ac.uk/id/eprint/15067

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