Adaptive Nonparametric Regression with Conditional Heteroskedasticity

In this paper, we study adaptive nonparametric regression estimation in the presence of conditional heteroskedastic error terms. We demonstrate that both the conditional mean and conditional variance functions in a nonparametric regression model can be estimated adaptively based on the local profile likelihood principle. Both the one-step Newton-Raphson estimator and the local profile likelihood estimator are investigated. We show that the proposed estimators are asymptotically equivalent to the infeasible local likelihood estimators (e.g., Aerts and Claeskens, 1997), which require knowledge of the error distribution. Simulation evidence suggests that when the distribution of the error term is different from Gaussian, the adaptive estimators of both conditional mean and variance can often achieve significant efficiency over the conventional local polynomial estimators. JEL classifications: C13, C14