Testing for Unconditional Predictive Ability
Federal Reserve Bank of St. Louis Working Paper No. 2010-031A
32 Pages Posted: 5 Oct 2010
Date Written: October 4, 2010
Abstract
This chapter provides an overview of pseudo-out-of-sample tests of unconditional predictive ability. We begin by providing an overview of the literature, including both empirical applications and theoretical contributions. We then delineate two distinct methodologies for conducting inference: one based on the analytics in West (1996) and the other based on those in Giacomini and White (2006). These two approaches are then carefully described in the context of pairwise tests of equal forecast accuracy between two models. We consider both non-nested and nested comparisons. Monte Carlo evidence provides some guidance as to when the two forms of analytics are most appropriate, in a nested model context.
Keywords: Predictability, Forecast Accuracy, Testing
JEL Classification: C53, C52, C12
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Tests of Equal Forecast Accuracy and Encompassing for Nested Models
-
Long Swings in the Exchange Rate: are They in the Data and Do Markets Know it?
-
Exchange Rates and Fundamentals
By Charles M. Engel and Kenneth D. West
-
Exchange Rates and Fundamentals
By Charles M. Engel and Kenneth D. West
-
Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?
-
Exchange Rates and Monetary Fundamentals: What Do We Learn from Long-Horizon Regressions?
By Lutz Kilian
-
Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?
By Yin-wong Cheung, Menzie David Chinn, ...