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A GMM estimator asymptotically more efficient than OLS and WLS in the presence of heteroskedasticity of unknown form

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  • Cuicui Lu
  • Jeffrey M. Wooldridge

Abstract

We propose a generalized method of moments (GMM) estimator, where our specific moment conditions, where our specific moment conditions ensure that the GMM estimator is asymptotically at least as efficient as ordinary least squares (OLS) and whatever competing weighted least squares (WLS) we wish to consider. With a popular exponential model of heteroskedasticity, our new GMM estimator performs significantly better than OLS or WLS. In an empirical application to a financial wealth equation, we show that the efficiency gains can be nontrivial with real data.

Suggested Citation

  • Cuicui Lu & Jeffrey M. Wooldridge, 2020. "A GMM estimator asymptotically more efficient than OLS and WLS in the presence of heteroskedasticity of unknown form," Applied Economics Letters, Taylor & Francis Journals, vol. 27(12), pages 997-1001, June.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:12:p:997-1001
    DOI: 10.1080/13504851.2019.1657228
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    Cited by:

    1. Larissa M. Batrancea & Horia Tulai, 2022. "Thriving or Surviving in the Energy Industry: Lessons on Energy Production from the European Economies," Energies, MDPI, vol. 15(22), pages 1-16, November.
    2. Chaudhuri, Saraswata & Renault, Eric, 2023. "Efficient estimation of regression models with user-specified parametric model for heteroskedasticty," The Warwick Economics Research Paper Series (TWERPS) 1473, University of Warwick, Department of Economics.
    3. Olatunji Abdul Shobande, 2021. "Decomposing the Persistent and Transitory Effect of Information and Communication Technology on Environmental Impacts Assessment in Africa: Evidence from Mundlak Specification," Sustainability, MDPI, vol. 13(9), pages 1-12, April.
    4. Dessie Tarko Ambaw & Vutha Hing & Patrick N. Osakwe & Shandre Mugan Thangavelu, 2023. "Minimising COVID‐19 transmission cases: Do policies and institutions matter?," The World Economy, Wiley Blackwell, vol. 46(7), pages 2054-2079, July.
    5. Amjad Naveed & Ghulam Shabbir & Shabib Haider Syed & Muhammad Ashfaq & Muhammad Ali Khan, 2022. "Can a path to peace promote export growth? Evidence from Pakistan and its trading partners," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(5), pages 3309-3324, October.
    6. Cristiana Tudor, 2022. "The Nexus between Pollution and Obesity and the Magnifying Role of Media Consumption: International Evidence from GMM Systems Estimates," IJERPH, MDPI, vol. 19(16), pages 1-18, August.
    7. Karma Emiljan, 2023. "Patriotic Tourism Demand in Albania: A System GMM Model Approach," South East European Journal of Economics and Business, Sciendo, vol. 18(2), pages 186-196, December.

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