THE PREDICTION OF THE TWO PARAMETER RIDGE ESTIMATOR

Abstract

biased estimation procedures have been proposed as an alternative to least squares, there has been little analysis of the predictive performance of the resulting equations. Therefore, we discuss the predictive performanceof the Two Parameter Ridge (2PR) estimator compared to ordinary least squares, principal components andridge regression estimators. Also, the theoretical results are illustrated by a numerical example and a regionis established where the 2PR estimator is uniformly superior to the other estimators

Keywords

• Biased estimation, Two Parameter Ridge estimator, Multicollinearity, Prediction Mean SquareError

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