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The Theory and Practice of Point-Optimal Testing

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  • Naorayex K. Dastoor
  • Gordon Fisher

Abstract

It is argued that the general formulation of point-optimal tests, as summarized in King (1988): i) makes use of a benchmark which is excessively stringent; ii) fails to integrate the method with traditional testing methods; iii) uses data to form a specific null hypothesis; iv) offers no guidance as to proper procedures in the event the null is rejected; v) eschews the use of Bayesian methods while demanding the use of prior information; and vi) yields tests with unknown power in the presence of specification error. For these reasons, point-optimal testing cannot yet be recommended as part of the econometrician's repertoire.

Suggested Citation

  • Naorayex K. Dastoor & Gordon Fisher, 1988. "The Theory and Practice of Point-Optimal Testing," Working Paper 710, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:710
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    References listed on IDEAS

    as
    1. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1983. "Testing nested or non-nested hypotheses," Journal of Econometrics, Elsevier, vol. 21(1), pages 83-115, January.
    2. Mizon, Grayham E & Richard, Jean-Francois, 1986. "The Encompassing Principle and Its Application to Testing Non-nested Hypotheses," Econometrica, Econometric Society, vol. 54(3), pages 657-678, May.
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