Assessing the Accuracy of Event Forecasts
Event forecasts, often generated from estimated econometric models, comprise a binary time series. In empirical finance, the market timing test proposed by Henricksson and Merton (1981) is probably the most popular method to assess the accuracy of these forecasts. Unfortunately, event forecasts and/or realizations are serially correlated, violating the independent identical distributed (IID) assumption. Consequently, the market timing test has an inflated size that can lead to doubtful empirical results. We find that the heteroskedasticity- autocorrelation (HAC) robust t-test with fixed-b asymptotics in Kiefer and Vogelsang (2005) and with the empirical distribution obtained using the naive block bootstrap can overcome this problem. As compared to several extant testing methods, simulation results reveal that the empirical size of these two testing procedures is quite close to the nominal size in finite samples. An empirical study is performed to demonstrate the usefulness of the naive block bootstrap.
Volume (Year): 5 (2009)
Issue (Month): 2 (July)
|Contact details of provider:|| Postal: 100 Wenhwa Road, Seatwen, Taichung|
Web page: http://www.jem.org.tw/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Breen, William & Glosten, Lawrence R & Jagannathan, Ravi, 1989. " Economic Significance of Predictable Variations in Stock Index Returns," Journal of Finance, American Finance Association, vol. 44(5), pages 1177-1189, December.
- Engel, Charles, 1994.
"Can the Markov switching model forecast exchange rates?,"
Journal of International Economics,
Elsevier, vol. 36(1-2), pages 151-165, February.
- Charles Engel, 1992. "Can the Markov Switching Model Forecast Exchange Rates?," NBER Working Papers 4210, National Bureau of Economic Research, Inc.
- Charles Engel, 1991. "Can the Markov switching model forecast exchange rates?," Research Working Paper 91-04, Federal Reserve Bank of Kansas City.
- Dimitris Politis & Halbert White, 2004. "Automatic Block-Length Selection for the Dependent Bootstrap," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 53-70.
- Lahiri, Soumendra Nath, 1996. "On Edgeworth Expansion and Moving Block Bootstrap for StudentizedM-Estimators in Multiple Linear Regression Models," Journal of Multivariate Analysis, Elsevier, vol. 56(1), pages 42-59, January.
- Newey, Whitney & West, Kenneth, 2014.
"A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix,"
Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-708, May.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, vol. 54(4), pages 513-533, October.
- Kiefer, Nicholas M. & Vogelsang, Timothy J., 2005.
"A New Asymptotic Theory for Heteroskedasticity-Autocorrelation Robust Tests,"
05-08, Cornell University, Center for Analytic Economics.
- Kiefer, Nicholas M. & Vogelsang, Timothy J., 2005. "A New Asymptotic Theory For Heteroskedasticity-Autocorrelation Robust Tests," Econometric Theory, Cambridge University Press, vol. 21(06), pages 1130-1164, December.
- Park, Joon, 2002.
"Bootstrap Unit Root Tests,"
2003-04, Rice University, Department of Economics.
- Joon Y. Park, 2000. "Bootstrap Unit Root Tests," Econometric Society World Congress 2000 Contributed Papers 1587, Econometric Society.
- Donald W.K. Andrews, 1988.
"Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation,"
Cowles Foundation Discussion Papers
877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
- Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
- Kiefer, Nicholas M. & Vogelsang, Timothy J., 2002. "Heteroskedasticity-Autocorrelation Robust Testing Using Bandwidth Equal To Sample Size," Econometric Theory, Cambridge University Press, vol. 18(06), pages 1350-1366, December.
When requesting a correction, please mention this item's handle: RePEc:jec:journl:v:5:y:2009:i:2:p:219-240. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yi-Ju Su)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.