VIF-based adaptive matrix perturbation method for heteroskedasticity-robust covariance estimators in the presence of multicollinearity

ABSTRACT

In this study, we investigate linear regression having both heteroskedasticity and collinearity problems. We discuss the properties related to the perturbation method. Important observations are summarized as theorems. We then prove the main result that states the heteroskedasticity-robust variances can be improved and that the resulting bias is minimized by using the matrix perturbation method. We analyze a practical example for validation of the method.

KEYWORDS:

• Collinearity
• linear regression
• matrix theory
• optimization

MATHEMATICS SUBJECT CLASSIFICATION:

• 62J05
• 62J20