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The Power of Hessian and Outer Product Based Wald and LM Tests

Author

Listed:
  • Parks, R.W.
  • Savin, N.E.

    (University of Iowa)

  • Wurtz, A.H.

Abstract

Wald and Lagrange Multiplier (LM) tests can be based on three commonly used estimators of the information matrix : the expectation of the Hessian matric, the Hessian matrix without the expectation operator or the outer product (OP) matrix of the score vectors. Although the Wald and LM tests are asymptotically equivalent, they typically have different powers in finite samples. We prove that Hessian based tests are superior to OP based tests in the normal linear regression model.

Suggested Citation

  • Parks, R.W. & Savin, N.E. & Wurtz, A.H., 1997. "The Power of Hessian and Outer Product Based Wald and LM Tests," Working Papers 97-02, University of Iowa, Department of Economics.
    • Handle: RePEc:uia:iowaec:97-02
    as

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    More about this item

    Keywords

    STATISTICS ; MATHEMATICS ; ECONOMETRICS;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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