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Bootstrap estimation of actual significance levels for tests based on estimated nuisance parameters

Author

Listed:
  • Yao, Qiwei
  • Yang, Wengyan
  • Tong, Howell

Abstract

Often for a non-regular parametric hypothesis, a tractable test statistic involves a nuisance parameter. A common practice is to replace the unknown nuisance parameter by its estimator. The validality of such a replacement can only be justified for an infinite sample in the sense that under appropriate conditions the asymptotic distribution of the statistic under the null hypothesis is unchanged when the nuisance parameter is replaced by its estimator (Crowder M.J. 1990. Biometrika 77: 499–506). We propose a bootstrap method to calibrate the error incurred in the significance level, for finite samples, due to the replacement. Further, we have proved that the bootstrap method provides a more accurate estimator for the unknown actual significance level than the nominal level. Simulations demonstrate the proposed methodology.

Suggested Citation

  • Yao, Qiwei & Yang, Wengyan & Tong, Howell, 2001. "Bootstrap estimation of actual significance levels for tests based on estimated nuisance parameters," LSE Research Online Documents on Economics 6103, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:6103
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    File URL: http://eprints.lse.ac.uk/6103/
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    More about this item

    Keywords

    bootstrap estimation; extreme value; hypothesis test; non-regular parametric family; nuisance parameter; significance level;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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