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

  • Peter Reinhard Hansen
  • Allan Timmermann

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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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. Clark, Todd E. & McCracken, Michael W., 2001. "Tests of equal forecast accuracy and encompassing for nested models," Journal of Econometrics, Elsevier, vol. 105(1), pages 85-110, November.
  2. Raffaella Giacomini & Halbert White, 2003. "Tests of conditional predictive ability," Boston College Working Papers in Economics 572, Boston College Department of Economics.
  3. repec:att:wimass:9417 is not listed on IDEAS
  4. Kenneth D. West, 1994. "Asymptotic Inference About Predictive Ability," Macroeconomics 9410002, EconWPA.
  5. 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.
  6. Barbara Rossi & Atsushi Inoue, 2011. "Out-of-sample forecast tests robust to the choice of window size," Working Papers 11-31, Federal Reserve Bank of Philadelphia.
  7. Hansen, Bruce E., 1992. "Convergence to Stochastic Integrals for Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 8(04), pages 489-500, December.
  8. McCracken, Michael W., 2007. "Asymptotics for out of sample tests of Granger causality," Journal of Econometrics, Elsevier, vol. 140(2), pages 719-752, October.
  9. Todd Clark & Michael McCracken, 2005. "Evaluating Direct Multistep Forecasts," Econometric Reviews, Taylor & Francis Journals, vol. 24(4), pages 369-404.
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