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Hi

In textbook of wooldridge "Introductory Econometrics A modern approach", I read that Feasible GLS is biased because we have to estimate the variance (the "h" function) using the same data as the mean model. I do not see why fGLS is biased because of that. Any thoughts???

Help is much appreciated!
S

One simple explanation is that the estimated weights are themselves random variables. As a result the usual proofs of unbiasedness don't go through. However, feasible GLS is generally consistent.