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Equivalence Between Out-of-Sample Forecast Comparisons and Wald Statistics

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  • Peter Reinhard Hansen
  • Allan Timmermann

Abstract

We 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 simplifies 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 Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2012/24.

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Date of creation: 2012
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Handle: RePEc:eui:euiwps:eco2012/24

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  1. Todd E. Clark & Michael W. McCracken, 1999. "Tests of equal forecast accuracy and encompassing for nested models," Research Working Paper 99-11, Federal Reserve Bank of Kansas City.
  2. Todd Clark & Michael McCracken, 2005. "Evaluating Direct Multistep Forecasts," Econometric Reviews, Taylor & Francis Journals, vol. 24(4), pages 369-404.
  3. Inoue, Atsushi & Rossi, Barbara, 2011. "Out-of-Sample Forecast Tests Robust to the Choice of Window Size," CEPR Discussion Papers 8542, C.E.P.R. Discussion Papers.
  4. repec:att:wimass:9417 is not listed on IDEAS
  5. Kenneth D. West, 1994. "Asymptotic Inference About Predictive Ability," Macroeconomics 9410002, EconWPA.
  6. Peter Reinhard HANSEN & Allan TIMMERMANN, 2012. "Choice of Sample Split in Out-of-Sample Forecast Evaluation," Economics Working Papers ECO2012/10, European University Institute.
  7. McCracken, Michael W., 2007. "Asymptotics for out of sample tests of Granger causality," Journal of Econometrics, Elsevier, vol. 140(2), pages 719-752, October.
  8. Raffaella Giacomini & Halbert White, 2006. "Tests of Conditional Predictive Ability," Econometrica, Econometric Society, vol. 74(6), pages 1545-1578, November.
  9. Hansen, Bruce E., 1992. "Convergence to Stochastic Integrals for Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 8(04), pages 489-500, December.
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