Adjusted profile estimating function

Estimation of an unstructured covariance matrix is difficult because of its positive-definiteness constraint.This obstacle is removed by regressing each variable on its predecessors, so that estimation of a covariance matrix is shown to be equivalent to that of estimating a sequence of varying-coefficient and varying-order regression models. Our framework is similar to the use of increasing-order autoregressive models in approximating the covariance matrix or the spectrum of a stationary time series. As an illustration, we adopt Fan & Zhangʹs (2000) two-step estimation of functional linear models and propose nonparametric estimators of covariance matrices which are guaranteed to be positive definite. For parsimony a suitable order for the sequence of (auto)regression models is found using penalised likelihood criteria like AIC and BIC. Some asymptotic results for the local polynomial estimators of components of a covariance matrix are established. Two longitudinal datasets are analysed to illustrate the methodology. A simulation study reveals the advantage of the nonparametric covariance estimator over the sample covariance matrix for large covariance matrices.