Should We Demean the Data?

Annals of Economics and Finance, 2015, vol. 16 (1), 163-171

Posted: 27 Feb 2016

Date Written: February 25, 2015

Abstract

The sample average is an unbiased estimator of the population mean, so it may seem innocuous that for estimating model parameters that do not involve the population mean, the data can be demeaned first. Using a first-order moving average (MA) model for example, we derive the analytical approximate biases of the quasi maximum likelihood estimators (QMLEs) based on the original and demeaned data. The bias results indicate that the QMLEs can behave quite differently in finite samples and it is not always advisable to demean the data if the MA parameter is of primary interest to estimate.

Keywords: Demean, Moving Average, Bias

JEL Classification: C22, C51

Suggested Citation

Bao, Yong, Should We Demean the Data? (February 25, 2015). Annals of Economics and Finance, 2015, vol. 16 (1), 163-171, Available at SSRN: https://ssrn.com/abstract=2738111

Yong Bao (Contact Author)

Purdue University ( email )

Department of Economics
West Lafayette, IN 47907
United States

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