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Forecast encompassing tests and probability forecasts

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  • Michael P. Clements

    (Department of Economics, University of Warwick, Coventry, UK)

  • David I. Harvey

    (School of Economics, University of Nottingham, UK)

Abstract

We consider tests of forecast encompassing for probability forecasts, for both quadratic and logarithmic scoring rules. We propose test statistics for the null of forecast encompassing, present the limiting distributions of the test statistics, and investigate the impact of estimating the forecasting models' parameters on these distributions. The small-sample performance is investigated, in terms of small numbers of forecasts and model estimation sample sizes. We show the usefulness of the tests for the evaluation of recession probability forecasts from logit models with different leading indicators as explanatory variables, and for evaluating survey-based probability forecasts. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1097
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File URL: http://qed.econ.queensu.ca:80/jae/2010-v25.6/
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 25 (2010)
Issue (Month): 6 ()
Pages: 1028-1062

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Handle: RePEc:jae:japmet:v:25:y:2010:i:6:p:1028-1062

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References

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Citations

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Cited by:
  1. Jonas Dovern & Christina Ziegler, 2008. "Predicting Growth Rates and Recessions. Assessing U.S. Leading Indicators under Real-Time Condition," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 54(4), pages 293-318.
  2. Marco Aiolfi & Carlos Capistrán & Allan Timmermann, 2010. "Forecast Combinations," Working Papers 2010-04, Banco de México.
  3. David G. McMillan & Mark E. Wohar, 2010. "Stock return predictability and dividend-price ratio: a nonlinear approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 351-365.
  4. Clements, Michael P., 2008. "Consensus and uncertainty: Using forecast probabilities of output declines," International Journal of Forecasting, Elsevier, vol. 24(1), pages 76-86.
  5. Rodrigues, Bruno Dore & Stevenson, Maxwell J., 2013. "Takeover prediction using forecast combinations," International Journal of Forecasting, Elsevier, vol. 29(4), pages 628-641.
  6. Clements, Michael P., 2010. "Explanations of the inconsistencies in survey respondents' forecasts," European Economic Review, Elsevier, vol. 54(4), pages 536-549, May.

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