“Go Wild for a While!”: A New Test for Forecast Evaluation in Nested Models.
Fecha
2021-09-21
Profe guía
Perfil ORCID
Título de la revista
ISSN de la revista
Título del volumen
Editor
MDPI
ISBN
ISSN
2227-7390
ISSNe
Resumen
In this paper, we present a new asymptotically normal test for out-of-sample evaluation in nested models. Our approach is a simple modification of a traditional encompassing test that is commonly known as Clark and West test (CW). The key point of our strategy is to introduce an independent random variable that prevents the traditional CW test from becoming degenerate under the null hypothesis of equal predictive ability. Using the approach developed by West (1996), we show that in our test, the impact of parameter estimation uncertainty vanishes asymptotically. Using a variety of Monte Carlo simulations in iterated multi-step-ahead forecasts, we evaluated our test and CW in terms of size and power. These simulations reveal that our approach is reasonably well-sized, even at long horizons when CW may present severe size distortions. In terms of power, results were mixed but CW has an edge over our approach. Finally, we illustrate the use of our test with an empirical application in the context of the commodity currencies literature
Descripción
Lugar de Publicación
Sponsorship
Citación
Mathematics, Vol. 9, N° 18, 2254 (2021) p. 1-28
Palabras clave
Licencia
Atribución-NoComercial-CompartirIgual 3.0 Chile (CC BY-NC-SA 3.0 CL)