Out-of-Sample Forecast Tests Robust to Window Size Choice
AbstractThis paper proposes new methodologies for evaluating out-of-sample forecasting performance that are robust to the choice of the estimation window size. The methodologies involve evaluating the predictive ability of forecasting models over a wide range of window sizes. We show that the tests proposed in the literature may lack power to detect predictive ability, and might be subject to data snooping across different window sizes if used repeatedly. An empirical application shows the usefulness of the methodologies for evaluating exchange rate models' forecasting ability.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 11-04.
Date of creation: 2011
Date of revision:
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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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Web page: http://econ.duke.edu/
Predictive Ability Testing; Forecast Evaluation; Estimation Window;
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- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
- NEP-CBA-2011-06-25 (Central Banking)
- NEP-ECM-2011-06-25 (Econometrics)
- NEP-ETS-2011-06-25 (Econometric Time Series)
- NEP-FOR-2011-06-25 (Forecasting)
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- Peter Reinhard Hansen & Allan Timmermann, 2012.
"Choice of Sample Split in Out-of-Sample Forecast Evaluation,"
CREATES Research Papers
2012-43, School of Economics and Management, University of Aarhus.
- Peter Reinhard HANSEN & Allan TIMMERMANN, 2012. "Choice of Sample Split in Out-of-Sample Forecast Evaluation," Economics Working Papers ECO2012/10, European University Institute.
- Todd Clark & Michael W. McCracken, 2011.
"Advances in forecast evaluation,"
1120, Federal Reserve Bank of Cleveland.
- Barbara Rossi, 2011. "Advances in Forecasting Under Instability," Working Papers 11-20, Duke University, Department of Economics.
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