Working Papers, Hanken School of Economics
No 555:
Practical Proposals for Specifying k-Nearest Neighbours Weights Matrices
Linda Gerkman ()
and Niklas Ahlgren ()
Abstract: In this article we introduce and evaluate testing
procedures for specifying the number k of nearest neighbours in the weights
matrix of spatial econometric models. The spatial J-test is used for
specification search. Two testing procedures are suggested: an increasing
neighbours testing procedure and a decreasing neighbours testing procedure.
Simulations show that the increasing neighbours testing procedures can be
used in large samples to determine k. The decreasing neighbours testing
procedure is found to have low power, and is not recommended for use in
practice. An empirical example involving house price data is provided to
show how to use the testing procedures with real data.
Keywords: k-nearest neighbours; model specification; spatial j-test; weights matrix; (follow links to similar papers)
26 pages, May 18, 2011
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