One of the important assumptions of the linear model is that observed responses of the model are independent. However, in reality, significant serial correlation might occur when data are collected sequentially in time. Autocorrelation, also known as serial correlation, occurs when successive items in a series are correlated so that their covariance is not zero and they are not independent. The main objective of this chapter is to develop some penalty and improved estimators, namely, ridge regression estimator (RRE) and the least absolute shrinkage and selection operator (LASSO) and the Stein‐type estimators for the linear regression model with AR(1) errors when some of the coefficients are not statistically significant.
To describe the problem of autocorrelation, we consider the following regression model,
where 's are responses, is a known vector of regressors, is an unknown vector of unknown regression parameters, and is an disturbance vector.
Under the assumption of independence and is of full rank, the errors are not autocorrelated and and are independently distributed. In that case, the least squares estimator (LSE) of is obtained as
with the covariance matrix of as
In a real‐life situation, the necessary assumptions for the LSE may not be met. That means, both regressors and responses may be correlated instead of independent. In that case, the LSE does not possess the optimum property.
Now we will assume that the errors of the model (9.1) has an AR error term of order 1. That is
where is the autoregressive parameter and are independently and identically distributed white noise random variables with zero mean and variance. The variance covariance matrix of is
where
This matrix is function of AR parameters and , which need to be estimated from data.
Since the covariance matrix of is nonspherical, the LSE of will be inefficient compared to generalized least squares estimator (GLSE). Thus we need to estimate the parameters using the GLSE. The GLSE of is
with covariance matrix
where
and is a parameter and can be estimated using the least squares principle as
Here, is the th residual and , where
and
Now, we are interested in the estimation of subvector when one suspects from previous studies/experiences that is also equal to zero. As such, consider the partition of , where and have dimensions and , respectively, and and . Then, we may write the estimators of as
If we suspect sparsity in , i.e. , then the estimator of is given by
where
We consider two basic penalty estimators, namely, (i) RREs and the (ii) LASSO estimator of .
As for the RREs, we , yielding a normal equation as
so that the RRE of is obtained as
with the covariance matrix of
Here, both parameters and are unknown and need to be estimated from data. RRE for the autoregressive model has been considered by several researchers such as Ismail and Suvarna (2016). To obtain the RRE of , we consider the asymptotic marginal distribution of
where
respectively, with
Also,
and
From (9.9), we define the RREs of as
Since, we suspect that the sparsity condition, , may hold, we use the Wald test statistic, , for testing the hypothesis , where
For large samples and under , has a chi‐square distribution with degrees of freedom (D.F.) Let , (say) be the ‐level critical value from the null distribution of . Then, the preliminary test estimator (PTE) of may be written using the marginal distribution of as
where is the indicator function of the set .
We notice that PTE is a discrete function and loses some optimality properties. Thus, we consider the continuous version of the PTE which mimics the Stein‐type estimators given by
Since the SE may yield estimators with wrong signs, we consider the positive‐rule Stein‐type estimator (PRSE) of given by
A modified least absolute shrinkage and selection operator (MLASSO) estimator may be defined by the vector
where is the th diagonal element of . This estimator puts some coefficient exactly equal to zero.
Now, we know that the asymptotic marginal distribution of
We consider the estimation of by any estimator under the ‐risk function
Consider the family of diagonal linear projections
Following Chapter 08, we obtain the ideal risk
Now, if coefficients exceed the noise level and coefficients are 0's, then the risk is given by
Consequently, the weighted ‐risk lower bound is given by as
We shall use this lower bound to compare MLASSO with other estimators. For details on LASSO estimators, see Chapter 05.
In this section, we present the asymptotic distributional bias (ADB) and asymptotic distributional ‐risk (ADR) of the shrinkage estimators.
First, we consider the simplest version of the RRE given by
The risk function for RRE is
The weighted ‐risk function is
The optimum value of is obtained as . So that
The risk function of the MLASSO estimator is
The weighted ‐risk function is
In this section, we study the comparative properties of the estimators relative to the GLSEs. We consider the weighted ‐risk to compare the performance of the estimators. However, it is noted that all of the weighted ‐risk functions in this chapter except for the restricted LSEs are identical to those of the risk functions in Chapter 08. Thus, we should skip the finite sample comparison among the estimators except for the RGLSE.
In this case, the asymptotic distributional relative weighted ‐risk efficiency of RGLSE vs. GLSE is given by
where
The is a decreasing function of . At , its value is
and as , its value is 0. It crosses the 1‐line at . So,
In order to compute , we need to find , , and . These are obtained by generating explanatory variables by the following equation based on McDonald and Galarneau (1975),
where are independent pseudorandom numbers and is the correlation between any two explanatory variables. In this study, we take , and 0.9 which shows the variables are lightly collinear and severely collinear. In our case, we chose and various . The resulting output is then used to compute .
Here, the relative weighted ‐risk efficiency expression for PTE vs. LSE is given by
where
Then, the PTE outperforms the LSE for
Otherwise, LSE outperforms the PTE in the interval . We may mention that is a decreasing function of with a maximum at the point , then decreases crossing the 1‐line to a minimum at the point with a value , and then increases toward 1‐line.
The belongs to the interval
where depends on the size and given by
The quantity is the value at which the relative weighted ‐risk efficiency value is minimum.
Since SE and PRSE need to express their weighted ‐risk expressions, we assume always . We have
It is a decreasing function of . At , its value is and when , its value goes to 1. Hence, for ,
Also,
So that,
First, we consider weighted ‐risk difference of GLSE and RRE given by
Hence, RRE outperforms the GLSE uniformly. Similarly, for the RGLSE and RRE, the weighted ‐risk difference is given by
If , then 9.63 is negative. Hence, RGLSE outperforms RRE at this point. Solving the equation
for , we get
If , RGLSE outperforms better than the RRE, and if , RRE performs better than RGLSE; Thus, RGLSE nor RRE outperforms the other uniformly.
In addition, the relative weighted ‐risk efficiency of RRE vs. GLSE equals
which is a decreasing function of with maximum at and minimum 1 as . So,
Here, the weighted ‐risk difference of and is given by
Note that the risk of is an increasing function of crossing the ‐line to a maximum and then drops monotonically toward the ‐line as . The value of the risk is at . On the other hand, is an increasing function of below the ‐line with a minimum value 0 at and as , . Hence, the risk difference in Eq. 9.67 is nonnegative for . Thus, the RRE uniformly performs better than PTE.
The weighted ‐risk difference of and is given by
Note that the first function is increasing in with a value at ; and as , it tends to . The second function is also increasing in with a value at and approaches the value as . Hence, the risk difference is nonnegative for all . Consequently, RRE outperforms SE uniformly.
The risk of is
where
and is
The weighted ‐risk difference of PRSE and RRE is given by
where
Consider the . It is a monotonically increasing function of . At , its value is ; and as , it tends to . For , at , the value is ; and as , it tends to . Hence, the ‐risk difference in 9.71 is nonnegative and RRE uniformly outperforms PRSE.
Note that the risk difference of and at is
because the expected value in Eq. 9.72 is a decreasing function of D.F., and
First, note that if coefficients and coefficients are zero in a sparse solution, the lower bound of the weighted risk is given by . Thereby, we compare all estimators relative to this quantity. Hence, the weighted ‐risk difference between LSE and MLASSO is given by
Hence, if , the MLASSO performs better than the LSE, while if the LSE performs better than the MLASSO. Consequently, neither LSE nor the MLASSO performs better than the other uniformly.
Next we compare the RGLSE and MLASSO. In this case, the weighted ‐risk difference is given by
Hence, the RGLSE uniformly performs better than the MLASSO. If , MLASSO and RGLSE are ‐risk equivalent. If the GLSEs are independent, then . Hence, MLASSO satisfies the oracle properties.
We first consider the PTE vs. MLASSO. In this case, the weighted ‐risk difference is given by
Hence, the MLASSO outperforms the PTE when . But, when , then the MLASSO outperforms the PTE for
Otherwise, PTE outperforms the MLASSO. Hence, neither PTE nor MLASSO outperforms the other uniformly.
Next, we consider SE and PRSE vs. the MLASSO. In these two cases, we have weighted ‐risk differences given by
and from 9.69,
where is given by 9.70. Hence, the MLASSO outperforms the SE as well as the PRSE in the interval
Thus, neither the SE nor the PRSE outperforms the MLASSO, uniformly.
Here, the weighted ‐risk difference is given by
Hence, the RRE outperforms the MLASSO uniformly.
In this section, we want to illustrate the methodology of this chapter by using a real data application. In this regard, we want to see whether there is any relationship between sea level rise at Key West, Florida with the following regressors: time (year); atmospheric carbon dioxide concentration (); ocean heat content (OHC); global mean temperature (Temp); RF; PC; sunspots (SP); Pacific decadal oscillation (PDO); Southern Oscillation Index (SOI), which measures the strength of the Southern Oscillation.
The sources of data are: (i) National Oceanographic and Atmospheric Administration (NOAA), (ii) Australian Government Bureau of Meteorology, and (iii) NASA Goddard Institute for Space Studies (NASA GISS). Since there are a lot of missing values and some variables are measured at a later time, we consider data between 1959 and 2016 so that we can consider nine (9) independent variables (regressors). All variables are standardized so that all regression coefficients are comparable.
We consider the following linear regression model:
We first apply the LSE and fit the following linear regression model:
with , , and with and ‐value = . This indicates that overall the regression model is significant.
The correlation matrix among the variables is given in Table 9.1. If we review Table 9.1, we can see that there are moderate to strong relationships among some of the regressors.
Table 9.1 Correlation coefficients among the variables.
SL | OHC | Year | Temp | RF | PC | SP | PDO | SOI | ||
SL | 1.000 | 0.894 | 0.846 | 0.885 | 0.828 | 0.020 | 0.007 | 0.142 | 0.045 | 0.109 |
0.894 | 1.000 | 0.952 | 0.993 | 0.920 | 0.010 | 0.008 | 0.182 | 0.083 | 0.044 | |
OHC | 0.846 | 0.952 | 1.000 | 0.920 | 0.912 | 0.035 | 0.051 | 0.195 | 0.120 | 0.020 |
Year | 0.885 | 0.993 | 0.920 | 1.000 | 0.898 | 0.008 | 0.012 | 0.174 | 0.061 | 0.067 |
Temp | 0.828 | 0.920 | 0.912 | 0.898 | 1.000 | 0.080 | 0.063 | 0.081 | 0.011 | 0.158 |
RF | 0.020 | 0.010 | 0.035 | 0.008 | 0.080 | 1.000 | 0.967 | 0.119 | 0.045 | 0.241 |
PC | 0.007 | 0.008 | 0.051 | 0.012 | 0.063 | 0.967 | 1.000 | 0.121 | 0.025 | 0.243 |
SP | 0.142 | 0.182 | 0.195 | 0.174 | 0.081 | 0.119 | 0.121 | 1.000 | 0.002 | 0.043 |
PDO | 0.045 | 0.083 | 0.120 | 0.061 | 0.011 | 0.045 | 0.025 | 0.002 | 1.000 | 0.587 |
SOI | 0.109 | 0.044 | 0.020 | 0.067 | 0.158 | 0.241 | 0.243 | 0.043 | 0.587 | 1.000 |
We can see from Table 9.2 that among the nine regressors, six have variance inflation factor (VIF) greater than 10. So there is moderate to strong multicollinearity existing in the data.
Table 9.2 VIF values related to sea level rise at Key West, Florida data set.
Variables | VIF |
239.285 | |
OHC | 21.678 |
Year | 139.294 |
Temp | 9.866 |
RF | 16.371 |
PC | 16.493 |
SP | 1.135 |
PDO | 1.624 |
SOI | 1.877 |
Condition index: . Since the condition number exceeds 1000, we may conclude that at least one of the regressors is responsible for the multicollinearity problem in the data.
Thus, from the correlation matrix, VIF, and the condition number, we conclude that these data suffer from the problem of multicollinearity.
Using the following R command, we found that the residual of the model follow AR(1) process. The estimated AR(1) coefficient, .
> phi=Arima(Res, order=c(1,1,0))$coe
> phi
ar1
---0.3343068
Since the data follow AR(1) process and the regressors are correlated, this data will be the most appropriate to analyze for this chapter.
Following Kibria (2003) and Kibria and Banik (2016), we may estimate the ridge coefficient . However, since different methods produce different values of , we consider the
> rstats2(ridge1.lm)$PRESS
K=0.001 K=0.01 K=0.05 K=0.1 K=0.5 K=0.9 K=1
15.40242 15.26157 14.80704 14.59746 14.82246 15.82000 16.12388
We use because this value gives a smaller predicted residual error sum of squares (PRESS).
Based on the full fitted model, we consider the following hypotheses:
and . We test the following hypothesis,
where
The fitted reduced linear regression model is
Now, using , and , the estimated values of the regression coefficient are provided in Table 9.3.
Table 9.3 Estimation of parameter using different methods (, , , and ).
GLSE | RGLSEE | RRE | MLASSO | PTGLSE | SGLSE | PRSLSE | |
2.533 | 2.533 | 2.533 | 2.533 | 2.533 | 2.533 | 2.533 | |
OHC | 1.173 | 1.173 | 1.173 | 0.000 | 1.173 | 1.173 | 1.173 |
Year | 0.313 | 0.313 | 0.298 | 0.000 | 0.313 | 0.269 | 0.269 |
Temp | 0.208 | 0.208 | 0.198 | 0.000 | 0.208 | 0.178 | 0.178 |
RF | 0.046 | 0.046 | 0.044 | 0.000 | 0.046 | 0.039 | 0.039 |
PC | 0.021 | 0.021 | 0.020 | 0.000 | 0.021 | 0.018 | 0.018 |
SP | 0.321 | 0.321 | 0.306 | 0.000 | 0.321 | 0.276 | 0.276 |
PDO | 0.178 | 0.178 | 0.169 | 0.000 | 0.178 | 0.152 | 0.152 |
SOI | 0.105 | 0.105 | 0.100 | 0.000 | 0.105 | 0.090 | 0.090 |
If we review Table 9.3, we can see that LASSO kept variable and kicked out the rest of the regressors. The sign of the temperature has been changed from negative to positive. This is true because as the temperature go up, the sea level should go up too. Table 9.4 also indicates that the LSE gave the wrong sign for the temperature variable and only is marginally significant at 5% significance level.
Table 9.4 Estimation of parameter using LSE (, , , and ).
LSE | Standard error | ‐Value | Pr() | |
Intercept | ||||
1.903 | 0.960 | 1.982 | 0.0532 | |
OHC | 0.186 | 0.289 | 0.647 | 0.521 |
Year | 0.790 | 0.732 | 1.079 | 0.285 |
Temp | 0.048 | 0.195 | 0.250 | 0.8033 |
RF | 0.271 | 0.251 | 1.079 | 0.286 |
PC | 0.215 | 0.252 | 0.856 | 0.396 |
SP | 0.027 | 0.061 | 0.418 | 0.677 |
PDO | 0.008 | 0.079 | 0.106 | 0.916 |
SOI | 0.085 | 0.085 | 1.170 | 0.247 |
Now, we consider the relative efficiency (REff) criterion to compare the performance of the estimators.
The REff of compared to GLSE is defined as
where could be any of the proposed estimators. If we review the risk functions (except GLSE) under Theorem 9.1.1, all the terms contain . To write these risk functions in terms of , we adopt the following procedure.
We obtain from Anderson (1984, Theorem A.2.4, p. 590) that
Since, , the above equation can be written as
where and are, respectively, the largest and the smallest characteristic roots of the matrix, . Using this result, the risk functions can be written as follows:
The risk function for GLSE is
The risk function for RGLSE is
The risk of PTGLSE is
The risk function for SGLSE is
The risk function of PRSGLSE is
The risk function for generalized RRE is
The risk function of MLASSO is
Using the risk functions in 9.84–9.90, the REff of the estimators for different values of are given in Table 9.5.
Table 9.5 Relative efficiency of the proposed estimators (, , , and ).
GLSE | RGLSE | RRE | MLASSO | PTGLSE | SGLSE | PRSGLSE | |
0.000 | 1.000 | 2.605 | 1.022 | 1.144 | 0.815 | 1.099 | 1.177 |
0.100 | 1.000 | 2.512 | 1.022 | 1.125 | 0.806 | 1.087 | 1.164 |
0.500 | 1.000 | 2.198 | 1.022 | 1.058 | 0.776 | 1.045 | 1.115 |
1.000 | 1.000 | 1.901 | 1.021 | 0.984 | 0.743 | 1.004 | 1.066 |
2.000 | 1.000 | 1.497 | 1.020 | 0.863 | 0.690 | 0.947 | 0.995 |
5.000 | 1.000 | 0.914 | 1.016 | 0.631 | 0.612 | 0.871 | 0.893 |
10.000 | 1.000 | 0.554 | 1.010 | 0.436 | 0.626 | 0.849 | 0.855 |
15.000 | 1.000 | 0.398 | 1.004 | 0.333 | 0.726 | 0.857 | 0.858 |
20.000 | 1.000 | 0.310 | 0.998 | 0.269 | 0.841 | 0.870 | 0.870 |
25.000 | 1.000 | 0.254 | 0.993 | 0.226 | 0.926 | 0.882 | 0.882 |
30.000 | 1.000 | 0.215 | 0.987 | 0.195 | 0.971 | 0.893 | 0.893 |
40.000 | 1.000 | 0.165 | 0.975 | 0.153 | 0.997 | 0.911 | 0.911 |
50.000 | 1.000 | 0.134 | 0.964 | 0.125 | 1.000 | 0.923 | 0.923 |
60.000 | 1.000 | 0.112 | 0.954 | 0.106 | 1.000 | 0.933 | 0.933 |
100.000 | 1.000 | 0.069 | 0.913 | 0.066 | 1.000 | 0.999 | 0.999 |
The relative efficiencies of the estimators for different values of are given in Figure 9.1 and Table 9.6.
If we review Tables 9.5 and 9.6, we can see that the performance of the estimators except the GLSE depend on the values of , , , , and . We immediately see that the restricted estimator outperforms all the estimators when the restriction is at 0. However, as goes away from the null hypothesis, the REff of RGLSE goes down and performs the worst when is large. Both PRSGLSE and SGLSE uniformly dominate the RRE and MLASSO estimator. We also observe that the GLSE uniformly dominates the PTGLSE for . The REff of PTGLSE increases as increases. These conclusions looks unusual, probably due to autocorrelated data. However, when is large, we have the usual conclusions (see Tables 9.7 and 9.8).
To see the effect of the autocorrelation coefficient on the performance of the proposed shrinkage, LASSO and RREs, we evaluated the REff for various values of , and 0.75 and presented them, respectively, in Figures 9.2–9.4 and Tables 9.6–9.9. If we review these figures and tables, under , we observe that the RGLSE performed the best followed by PRSGLSE, LASSO, SGLSE, and RRE; and PTGLSE (with ) performed the worst. The performance of the RGLSE becomes worse when increases and becomes inefficient for large .
To see the opposite effect of the autocorrelation coefficient on the proposed estimators, we evaluated the REff of the estimators for and and presented them in Figures 9.5 and 9.6 and Tables 9.10 and 9.11. If we review these two figures and tables, we can see that the proposed estimators perform better for positive value of than for the negative value of .
Table 9.7 The relative efficiency of the proposed estimators (, , , and ).
GLSE | RGLSE | RRE | MLASSO | PTGLSE | SGLSE | PRSGLSE | |
0.000 | 1.000 | 4.334 | 1.056 | 1.279 | 0.989 | 1.185 | 1.355 |
0.100 | 1.000 | 3.871 | 1.056 | 1.236 | 0.963 | 1.158 | 1.321 |
0.500 | 1.000 | 2.711 | 1.054 | 1.087 | 0.874 | 1.070 | 1.208 |
1.000 | 1.000 | 1.973 | 1.051 | 0.945 | 0.787 | 0.990 | 1.104 |
2.000 | 1.000 | 1.277 | 1.046 | 0.750 | 0.666 | 0.887 | 0.968 |
5.000 | 1.000 | 0.621 | 1.031 | 0.462 | 0.510 | 0.766 | 0.800 |
10.000 | 1.000 | 0.334 | 1.006 | 0.282 | 0.494 | 0.736 | 0.744 |
15.000 | 1.000 | 0.229 | 0.983 | 0.203 | 0.596 | 0.749 | 0.751 |
20.000 | 1.000 | 0.174 | 0.961 | 0.159 | 0.743 | 0.769 | 0.770 |
25.000 | 1.000 | 0.140 | 0.940 | 0.130 | 0.871 | 0.789 | 0.789 |
30.000 | 1.000 | 0.117 | 0.919 | 0.110 | 0.947 | 0.807 | 0.807 |
40.000 | 1.000 | 0.089 | 0.881 | 0.085 | 0.994 | 0.836 | 0.836 |
50.000 | 1.000 | 0.071 | 0.846 | 0.069 | 1.000 | 0.858 | 0.858 |
60.000 | 1.000 | 0.060 | 0.814 | 0.058 | 1.000 | 0.875 | 0.875 |
100.000 | 1.000 | 0.036 | 0.706 | 0.035 | 1.000 | 0.995 | 0.995 |
Table 9.6 The relative efficiency of the proposed estimators (, , , and ).
GLSE | RGLSE | RRE | MLASSO | PTGLSE | SGLSE | PRSGLSE | |
0.000 | 1.000 | 1.117 | 1.004 | 1.023 | 0.579 | 1.008 | 1.011 |
0.100 | 1.000 | 1.062 | 1.004 | 0.977 | 0.566 | 0.993 | 0.998 |
0.500 | 1.000 | 0.889 | 1.002 | 0.828 | 0.523 | 0.944 | 0.956 |
1.000 | 1.000 | 0.738 | 1.000 | 0.696 | 0.482 | 0.902 | 0.918 |
2.000 | 1.000 | 0.551 | 0.996 | 0.527 | 0.429 | 0.854 | 0.871 |
5.000 | 1.000 | 0.313 | 0.985 | 0.305 | 0.386 | 0.825 | 0.834 |
10.000 | 1.000 | 0.182 | 0.967 | 0.179 | 0.477 | 0.856 | 0.858 |
15.000 | 1.000 | 0.128 | 0.950 | 0.127 | 0.664 | 0.887 | 0.888 |
20.000 | 1.000 | 0.099 | 0.933 | 0.098 | 0.843 | 0.909 | 0.909 |
25.000 | 1.000 | 0.081 | 0.917 | 0.080 | 0.945 | 0.924 | 0.924 |
30.000 | 1.000 | 0.068 | 0.901 | 0.068 | 0.984 | 0.935 | 0.935 |
40.000 | 1.000 | 0.052 | 0.871 | 0.052 | 0.999 | 0.949 | 0.949 |
50.000 | 1.000 | 0.042 | 0.843 | 0.042 | 1.000 | 0.959 | 0.959 |
60.000 | 1.000 | 0.035 | 0.817 | 0.035 | 1.000 | 0.965 | 0.965 |
100.000 | 1.000 | 0.021 | 0.727 | 0.021 | 1.000 | 0.996 | 0.996 |
Table 9.8 The relative efficiency of the proposed estimators (, , , and ).
GLSE | RGLSE | RRE | MLASSO | PTGLSE | SGLSE | PRSGLSE | |
0.000 | 1.000 | 5.512 | 1.076 | 1.410 | 1.107 | 1.262 | 1.537 |
0.100 | 1.000 | 4.829 | 1.076 | 1.361 | 1.076 | 1.234 | 1.492 |
0.500 | 1.000 | 3.228 | 1.074 | 1.194 | 0.970 | 1.141 | 1.348 |
1.000 | 1.000 | 2.282 | 1.071 | 1.035 | 0.868 | 1.055 | 1.218 |
2.000 | 1.000 | 1.439 | 1.066 | 0.818 | 0.728 | 0.945 | 1.052 |
5.000 | 1.000 | 0.683 | 1.052 | 0.502 | 0.548 | 0.814 | 0.853 |
10.000 | 1.000 | 0.364 | 1.028 | 0.305 | 0.522 | 0.776 | 0.785 |
15.000 | 1.000 | 0.248 | 1.005 | 0.219 | 0.619 | 0.784 | 0.786 |
20.000 | 1.000 | 0.188 | 0.984 | 0.171 | 0.760 | 0.801 | 0.802 |
25.000 | 1.000 | 0.152 | 0.963 | 0.140 | 0.881 | 0.818 | 0.818 |
30.000 | 1.000 | 0.127 | 0.943 | 0.119 | 0.951 | 0.834 | 0.834 |
40.000 | 1.000 | 0.096 | 0.906 | 0.091 | 0.995 | 0.859 | 0.859 |
50.000 | 1.000 | 0.077 | 0.871 | 0.074 | 1.000 | 0.878 | 0.878 |
60.000 | 1.000 | 0.064 | 0.840 | 0.062 | 1.000 | 0.893 | 0.893 |
Table 9.9 The relative efficiency of the proposed estimators (, , , and ).
GLSE | RGLSE | RRE | MLASSO | PTGLSE | SGLSE | PRSGLSE | |
0.000 | 1.000 | 8.994 | 1.113 | 1.712 | 1.366 | 1.422 | 1.996 |
0.100 | 1.000 | 7.887 | 1.112 | 1.667 | 1.335 | 1.401 | 1.933 |
0.500 | 1.000 | 5.287 | 1.111 | 1.510 | 1.225 | 1.325 | 1.731 |
1.000 | 1.000 | 3.744 | 1.110 | 1.351 | 1.115 | 1.252 | 1.552 |
2.000 | 1.000 | 2.364 | 1.106 | 1.116 | 0.956 | 1.150 | 1.330 |
5.000 | 1.000 | 1.123 | 1.097 | 0.733 | 0.731 | 1.010 | 1.064 |
10.000 | 1.000 | 0.599 | 1.081 | 0.467 | 0.671 | 0.948 | 0.958 |
15.000 | 1.000 | 0.408 | 1.066 | 0.342 | 0.743 | 0.936 | 0.938 |
20.000 | 1.000 | 0.310 | 1.051 | 0.270 | 0.846 | 0.937 | 0.937 |
25.000 | 1.000 | 0.249 | 1.036 | 0.223 | 0.927 | 0.940 | 0.940 |
30.000 | 1.000 | 0.209 | 1.022 | 0.190 | 0.971 | 0.945 | 0.945 |
40.000 | 1.000 | 0.158 | 0.995 | 0.147 | 0.997 | 0.952 | 0.952 |
50.000 | 1.000 | 0.126 | 0.970 | 0.119 | 1.000 | 0.959 | 0.959 |
60.000 | 1.000 | 0.106 | 0.945 | 0.101 | 1.000 | 0.964 | 0.964 |
100.000 | 1.000 | 0.064 | 0.859 | 0.062 | 1.000 | 1.025 | 1.025 |
In this chapter, we considered the multiple linear regression model when the regressors are not independent and errors follow an AR(1) process. We proposed some shrinkage, namely, restricted estimator, PTE, Stein‐type estimator, PRSE as well as penalty estimators, namely, LASSO and RRE for estimating the regression parameters. We obtained the asymptotic distributional risk of the estimators and compared them in the sense of smaller risk and noncentrality parameter . We found that the performance of the estimators depend on the value of the autocorrelation coefficient, , number of regressors, and noncentrality parameter . A real‐life data was analyzed to illustrate the performance of the estimators. It is shown that the ridge estimator dominates the rest of the estimators under a correctly specified model. However, it shows poor performance when moves from the null hypothesis. We also observed that the proposed estimators perform better for a positive value of than for a negative value of .
Table 9.10 The relative efficiency of the proposed estimators (, , , and ).
GLSE | RGLSE | RRE | MLASSO | PTGLSE | SGLSE | PRSGLSE | |
0.000 | 1.000 | 14.861 | 1.094 | 1.978 | 1.602 | 1.546 | 2.459 |
0.100 | 1.000 | 13.895 | 1.094 | 1.960 | 1.585 | 1.538 | 2.389 |
0.500 | 1.000 | 11.028 | 1.094 | 1.891 | 1.518 | 1.508 | 2.161 |
1.000 | 1.000 | 8.767 | 1.093 | 1.811 | 1.443 | 1.475 | 1.957 |
2.000 | 1.000 | 6.218 | 1.093 | 1.669 | 1.317 | 1.419 | 1.699 |
5.000 | 1.000 | 3.321 | 1.092 | 1.352 | 1.084 | 1.305 | 1.376 |
10.000 | 1.000 | 1.869 | 1.089 | 1.027 | 0.950 | 1.205 | 1.215 |
15.000 | 1.000 | 1.301 | 1.087 | 0.828 | 0.940 | 1.153 | 1.154 |
20.000 | 1.000 | 0.997 | 1.085 | 0.694 | 0.962 | 1.121 | 1.122 |
25.000 | 1.000 | 0.809 | 1.082 | 0.597 | 0.982 | 1.100 | 1.100 |
30.000 | 1.000 | 0.680 | 1.080 | 0.524 | 0.993 | 1.085 | 1.085 |
40.000 | 1.000 | 0.516 | 1.076 | 0.421 | 0.999 | 1.066 | 1.066 |
50.000 | 1.000 | 0.416 | 1.071 | 0.352 | 1.000 | 1.054 | 1.054 |
60.000 | 1.000 | 0.348 | 1.067 | 0.302 | 1.000 | 1.045 | 1.045 |
100.000 | 1.000 | 0.211 | 1.049 | 0.193 | 1.000 | 1.044 | 1.044 |
and for large sample and under the null hypothesis, has chi‐square distribution with D.F.
Table 9.11 The relative efficiency of the proposed estimators (, , , and ).
GLSE | RGLSE | RRE | MLASSO | PTGLSE | SGLSE | PRSGLSE | |
0.000 | 1.000 | 1.699 | 1.020 | 1.127 | 0.705 | 1.088 | 1.157 |
0.100 | 1.000 | 1.695 | 1.020 | 1.126 | 0.706 | 1.087 | 1.153 |
0.500 | 1.000 | 1.679 | 1.020 | 1.118 | 0.708 | 1.082 | 1.139 |
1.000 | 1.000 | 1.658 | 1.020 | 1.109 | 0.712 | 1.077 | 1.124 |
2.000 | 1.000 | 1.619 | 1.020 | 1.091 | 0.721 | 1.068 | 1.100 |
5.000 | 1.000 | 1.511 | 1.019 | 1.041 | 0.760 | 1.049 | 1.060 |
10.000 | 1.000 | 1.361 | 1.019 | 0.968 | 0.842 | 1.033 | 1.035 |
15.000 | 1.000 | 1.237 | 1.018 | 0.903 | 0.915 | 1.025 | 1.025 |
20.000 | 1.000 | 1.134 | 1.017 | 0.847 | 0.962 | 1.020 | 1.020 |
25.000 | 1.000 | 1.047 | 1.017 | 0.798 | 0.985 | 1.016 | 1.016 |
30.000 | 1.000 | 0.973 | 1.016 | 0.754 | 0.995 | 1.014 | 1.014 |
40.000 | 1.000 | 0.851 | 1.015 | 0.679 | 1.000 | 1.011 | 1.011 |
50.000 | 1.000 | 0.757 | 1.014 | 0.617 | 1.000 | 1.009 | 1.009 |
60.000 | 1.000 | 0.681 | 1.013 | 0.566 | 1.000 | 1.007 | 1.007 |
100.000 | 1.000 | 0.487 | 1.008 | 0.425 | 1.000 | 1.009 | 1.009 |