Developing ridge estimation method for median regression |
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Authors: | Zangin Zeebari |
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Institution: | Department of Economics, Finance and Statistics , J?nk?ping International Business School , PO Box 1026, SE 55111 , J?nk?ping , Sweden |
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Abstract: | In this paper, the ridge estimation method is generalized to the median regression. Though the least absolute deviation (LAD) estimation method is robust in the presence of non-Gaussian or asymmetric error terms, it can still deteriorate into a severe multicollinearity problem when non-orthogonal explanatory variables are involved. The proposed method increases the efficiency of the LAD estimators by reducing the variance inflation and giving more room for the bias to get a smaller mean squared error of the LAD estimators. This paper includes an application of the new methodology and a simulation study as well. |
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Keywords: | least absolute deviations shrinkage multicollinearity efficiency robustness |
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