A Comparison of Inference Based on the Wald Statistic and the Loglikelihood Ratio in Logit and Probit Models Via Monte Carlo.

José Artur Lemonte & Luis Hernando Vanegas                               

 

 

Abstract

In this paper we present a study which evaluates and compares the performance of hypothesis testing and confidence intervals based on Wald’s statistic with those based on the likelihood ratio statistic for probit and logit models. We compare the rate of coverage of the confidence intervals, the maximum and inimum confidence interval coverage rate, and the power of the significance tests employing Monte Carlo simulation methods. The Wald and likelihood ratio statistics are also compared for the logit and probit models in the presence of errors in model specification.

 

Key words: Logit Model, probit model, Specification errors, Monte Carlo methods, Likelihood ratio test, Wald'S test.

 

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