Summary:

Superiority of the stochastic restricted Liu estimator under misspecification

M. H. Hubert and P. Wijekoon

This paper shows that, the Stochastic Restricted Liu Estimator (SRLE) with correct prior
information is better estimator for misspecified regression model due to the exclusion of some
relevant variables than Liu estimator.

In the second section of this paper, the SRLE is defined through Liu estimator and Mixed
Regression Estimator (MRE) by the assumption of excluding some relevant variables thereafter
the respective bias vector, the dispersion matrix and Mean Squared Error (MSE) Matrix are
obtained.

The third section shows the comparison of MSE matrix among SRLE and Liu estimator. The
Lemma obtained by Baksalary and Trenkler (1988) is used to compare those estimators under
two cases: 1 () and 1 (), where is a (1 1 ) matrix and 1 is a ( 1) vector
as defined in the lemma. The comparison revealed that the MSE of SRLE is greater than MSE of
Liu estimator under the certain condition derived in either case 1 or case 2. The result of this
comparison is defined as the theorem 1.

The last section shows the comparison among the MSE of predictors under the estimators SRLE
and Liu estimator, defined as Liu Predictor (LP) and Stochastic Restricted Liu Predictor (SRLP)
respectively, using the Lemma obtained by Baksalary and Kala (1983). The result of this
comparison is defined as the theorem 2. According to this theorem the MSE of the SLRP is greater
than MSE of the LP under certain condition. The condition derived in the theorem1 is sufficient
for the condition derived in theorem 2. According to the results, this paper revealed that there
are situations where SRLP outperforms LP with respect to the MSE matrix criterion.

In conclusion, the conditions derived in theorem 1 and theorem 2 reflect the results derived by
Trenkler and Wijekoon (1989) when comparing the Ordinary Least Square Estimator (OLSE) with
Mixed Regression Estimator (MRE) under misspecification for the value = 1, where is the
biasing parameter defined under the Liu estimator.