A modified Cp statistic in a system-of-equations model

Abstract

A new statistic, SΓ(p), is developed for variable selection in a system-of-equations model. The standardized total mean square error in the SΓ(p)statistic is weighted by the covariance matrix of dependent variables instead of the error covariance matrix of the true model as in the original definition. The new statistic can be also used for model selection in the non-nested models. The estimate of SΓ(p), SC(p), is derived and shown to become SCε(p) in the similar form of Cp in a single-equation model when the covariance matrix of sampled dependent variables is replaced by the error covariance matrix under the full model.