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Inference about predictive ability when there are many predictors

  • Stanislav Anatolyev

    ()

    (New Economic School)

We enhance the theory of asymptotic inference about predictive ability by considering the case when a set of variables used to construct predictions is sizable. To this end, we consider an alternative asymptotic framework where the number of predictors tends to in nity with the sample size, although more slowly. Depending on the situation the asymptotic normal distribution of an average prediction criterion either gains additional variance as in the few predictors case, or gains non-zero bias which has no analogs in the few predictors case. By properly modifying conventional test statistics it is possible to remove most size distortions when there are many predictors, and improve test sizes even when there are few of them.

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File URL: http://www.cefir.ru/papers/WP96Anatolyev.pdf
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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0096.

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Length: 43 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:cfr:cefirw:w0096
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  1. John Chao & Norman Swanson, 2004. "Consistent Estimation with a Large Number of Weak Instruments," Departmental Working Papers 200421, Rutgers University, Department of Economics.
  2. 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.
  3. McCracken,M.W. & West,K.D., 2001. "Inference about predictive ability," Working papers 14, Wisconsin Madison - Social Systems.
  4. repec:att:wimass:9710 is not listed on IDEAS
  5. Kenneth D. West, 1994. "Asymptotic Inference About Predictive Ability," Macroeconomics 9410002, EconWPA.
  6. Bekker, Paul A, 1994. "Alternative Approximations to the Distributions of Instrumental Variable Estimators," Econometrica, Econometric Society, vol. 62(3), pages 657-81, May.
  7. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  8. Koenker, Roger, 1988. "Asymptotic Theory and Econometric Practice," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(2), pages 139-47, April.
  9. Stock, James H. & Watson, Mark W., 2006. "Forecasting with Many Predictors," Handbook of Economic Forecasting, Elsevier.
  10. Koenker, Roger & Machado, Jose A. F., 1999. "GMM inference when the number of moment conditions is large," Journal of Econometrics, Elsevier, vol. 93(2), pages 327-344, December.
  11. West, Kenneth D & McCracken, Michael W, 1998. "Regression-Based Tests of Predictive Ability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 817-40, November.
  12. McCracken, Michael W., 2007. "Asymptotics for out of sample tests of Granger causality," Journal of Econometrics, Elsevier, vol. 140(2), pages 719-752, October.
  13. Graham Elliott & Allan Timmermann, 2008. "Economic Forecasting," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 3-56, March.
  14. Clark, Todd E. & West, Kenneth D., 2007. "Approximately normal tests for equal predictive accuracy in nested models," Journal of Econometrics, Elsevier, vol. 138(1), pages 291-311, May.
  15. John Galbraith & Victoria Zinde-Walsh, 2006. "Reduced-Dimension Control Regression," Departmental Working Papers 2006-17, McGill University, Department of Economics.
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