Equivalence Between Out-of-Sample Forecast Comparisons and Wald Statistics
AbstractWe establish the equivalence between a commonly used out-of-sample test of equal predictive accuracy and the difference between two Wald statistics. This equivalence greatly simpli?es the computational burden of calculating recursive out-of-sample tests and evaluating their critical values. Our results shed new light on many aspects of the test and establishes certain weaknesses associated with using out-of-sample forecast comparison tests to conduct inference about nested regression models.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2012-45.
Date of creation: 10 Oct 2012
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Out-of-sample Forecast Evaluation; Nested Models; Testing.;
Other versions of this item:
- Peter Reinhard Hansen & Allan Timmermann, 2012. "Equivalence Between Out-of-Sample Forecast Comparisons and Wald Statistics," Economics Working Papers ECO2012/24, European University Institute.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-ECM-2012-11-24 (Econometrics)
- NEP-ETS-2012-11-24 (Econometric Time Series)
- NEP-FOR-2012-11-24 (Forecasting)
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