On the Performance of Tests by Wu and by Hausman for Detecting the Ordinary Least Squares Bias Problem

Posted: 29 May 2013 Last revised: 30 May 2013

See all articles by Alice Orcutt Nakamura

Alice Orcutt Nakamura

University of Alberta - School of Business

Masao Nakamura

University of British Columbia (UBC) - Sauder School of Business

Date Written: September 30, 1984

Abstract

We first consider the performance of the Wu (1973), Hausman (1978) (W-H) specification error test as a test for the existence of ordinary least squares (OLS) bias. We discuss power properties of the test under alternative null hypotheses, one of which has not previously been considered. We next consider how the W-H test performs as an indicator of the extent (rather than the existence) of an OLS bias problem, since this usage of the test seems common in applied studies. Finally Monte Carlo methods are used to evaluate Wu's two-step estimation procedure involving the W-H test as a pretest.

Suggested Citation

Nakamura, Alice Orcutt and Nakamura, Masao, On the Performance of Tests by Wu and by Hausman for Detecting the Ordinary Least Squares Bias Problem (September 30, 1984). Journal of Econometrics, Vol. 29, No. 3, 1985, University of Alberta School of Business Research Paper No. 2013-263, Available at SSRN: https://ssrn.com/abstract=2270735

Alice Orcutt Nakamura (Contact Author)

University of Alberta - School of Business ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

Masao Nakamura

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8434 (Phone)
604-822-8477 (Fax)

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