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Comparing Predictive Accuracy, Twenty Years Later: A Personal Perspective on the Use and Abuse of Diebold-Mariano Tests

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  • Francis X. Diebold

Abstract

The Diebold-Mariano (DM) test was intended for comparing forecasts; it has been, and remains, useful in that regard. The DM test was not intended for comparing models. Unfortunately, however, much of the large subsequent literature uses DM-type tests for comparing models, in (pseudo-) out-of-sample environments. In that case, much simpler yet more compelling full-sample model comparison procedures exist; they have been, and should continue to be, widely used. The hunch that (pseudo-) out-of-sample analysis is somehow the "only," or "best," or even a "good" way to provide insurance against in-sample over-fitting in model comparisons proves largely false. On the other hand, (pseudo-) out-of-sample analysis may be useful for learning about comparative historical predictive performance.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18391.

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Date of creation: Sep 2012
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Handle: RePEc:nbr:nberwo:18391

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  1. Lutz Kilian & Mark P. Taylor, 2001. "Why is it so difficult to beat the Random Walk Forecast of Exchange Rates?," Tinbergen Institute Discussion Papers 01-031/4, Tinbergen Institute.
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  5. Barbara Rossi & Atsushi Inoue, 2012. "Out-of-Sample Forecast Tests Robust to the Choice of Window Size," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(3), pages 432-453, April.
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  7. Todd E. Clark & Michael W. McCracken, 2008. "Tests of equal predictive ability with real-time data," Working Papers 2008-029, Federal Reserve Bank of St. Louis.
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  1. My "Must Read" List
    by Dave Giles in Econometrics Beat: Dave Giles' Blog on 2012-09-27 01:33:00
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Cited by:
  1. Elliott, Graham & Gargano, Antonio & Timmermann, Allan, 2013. "Complete subset regressions," Journal of Econometrics, Elsevier, vol. 177(2), pages 357-373.
  2. Rachidi Kotchoni & Dalibor Stevanovic, 2013. "Probability and Severity of Recessions," CIRANO Working Papers 2013s-43, CIRANO.
  3. Hajo Holzmann & Matthias Eulert, 2014. "The role of the information set for forecasting - with applications to risk management," Papers 1404.7653, arXiv.org.

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