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AN ASYMPTOTIC THEORY FOR LEAST SQUARES MODEL AVERAGING WITH NESTED MODELS

Published online by Cambridge University Press:  08 February 2022

Fang Fang ,
Chaoxia Yuan  and
Wenling Tian
Fang Fang*
Affiliation:
East China Normal University
Chaoxia Yuan
Affiliation:
East China Normal University
Wenling Tian
Affiliation:
East China Normal University
*
Address correspondence to Fang Fang, Key Laboratory for Advanced Theory and Application in Statistics and Data Science—MOE, Faculty of Economics and Management, East China Normal University, 3663 North Zhongshan Road, Shanghai 200062, China; e-mail: [email protected].
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Abstract

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Theoretical results of frequentist model averaging mainly focus on asymptotic optimality and asymptotic distribution of the model averaging estimator. However, even for basic least squares model averaging, many theoretical problems have not been well addressed yet. This article discusses asymptotic properties of a class of least squares model averaging methods with nested candidate models that includes the Mallows model averaging (MMA) of Hansen (2007, Econometrica 75, 1175–1189) as a special case. Two scenarios are considered: (i) all candidate models are under-fitted; and (ii) the true model is included in the candidate models. We find that in the first scenario, the least squares model averaging method asymptotically assigns weight one to the largest candidate model and the resulting model averaging estimator is asymptotically normal. In the second scenario with a slightly special weight space, if the penalty factor in the weight selection criterion is diverging with certain order, the model averaging estimator is asymptotically optimal by putting weight one to the true model. However, MMA with fixed model dimensions is not asymptotically optimal since it puts nonnegligible weights to over-fitted models. The theoretical results are clearly summarized with their restrictions, and some critical implications are discussed. Monte Carlo simulations confirm our theoretical results.

Type
ARTICLES
Information
Econometric Theory , Volume 39 , Issue 2 , April 2023 , pp. 412 - 441
Copyright
© The Author(s), 2022. Published by Cambridge University Press

Footnotes

We would like to thank the Editor (Peter C.B. Phillips), the Co-Editor (Michael Jansson), and the anonymous referees for many constructive comments and suggestions that led to a much improved paper. Fang gratefully acknowledges the research support from National Key R&D Program of China (2021YFA1000100 and 2021YFA1000101) and the National Natural Science Foundation of China (12071143, 11831008, 11771146).

References

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