Programming the statistical procedures from SAS

FGLS/WLS vs. Robust standard error in small sample (HCCMETHOD=3)

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FGLS/WLS vs. Robust standard error in small sample (HCCMETHOD=3)

Hi,

I am using proc reg to estimate a two models where my sample size is 107 and 82. The population size is about 3000 at least, but it is impossible to get more data (public records).

I have estimated my model, and found that it contains heteroskedasticity. Furthermore, as some of my explanatory variables are on individual levels and not means, I need to log-transform to get normally distributed errors. But this introduces even more heteroskedasticity.

To account for this, I know of two different methods.

1)

I can use the model statement in proc reg to get heteroskedasticity-consistent robust standard errors. The main problem here is that these robust s.e. are only asymptotically robust. I am not sure how well these perform in my small samples of 82/107 obs.

Or..

2)

I can use feasible GLS to calculate the weights needed to account for the heteroskedasticity in the model - and estimate the model with a weight statement in proc reg. The question here is pretty much the same, I am not sure how well WLS  perform in my small sample.

Method, for this procedure, that I know of:

-take the log of the squared residuals from intended model

-regress log(u^2) on all X-vars and get fitted value (g_hat)

-Do WLS using 1 / exp(g_hat) as the weight.

QUESTIONS:

- In the SAS support page, there is a method (By McKinnon and White) in the model statement to get heteroskedasticity-consistent robust s.e. when the sample size is under 250 (HCCMETHOD=3). Is my sample to small for this method, or will these robust s.e. produce consistent and

  efficient results?

- Using the FGLS/WLS-procedure, will it produce consistent/efficient results on my small sample?

Any input much appreciated Smiley Happy

Best regards,

Hank

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