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Automatic Lag Selection in Covariance Matrix Estimation

Whitney K. Newey and Kenneth D. West
The Review of Economic Studies
Vol. 61, No. 4 (Oct., 1994), pp. 631-653
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2297912
Page Count: 23
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Automatic Lag Selection in Covariance Matrix Estimation
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Abstract

We propose a nonparametric method for automatically selecting the number of autocovariances to use in computing a heteroskedasticity and autocorrelation consistent covariance matrix. For a given kernel for weighting the autocovariances, we prove that our procedure is asymptotically equivalent to one that is optimal under a mean-squared error loss function. Monte Carlo simulations suggest that our procedure performs tolerably well, although it does result in size distortions.

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