arXiv 19 Aug 2020 · Econometrics · publishedEconometric Theory (2023) · 7 citations (OpenAlex)
arXiv:2008.08387 · PDF · DOI · OpenAlex · Extracted main text
We introduce a new approach for comparing the predictive accuracy of two nested models that bypasses the difficulties caused by the degeneracy of the asymptotic variance of forecast error loss differentials used in the construction of commonly used predictive comparison statistics. Our approach continues to rely on the out of sample MSE loss differentials between the two competing models, leads to nuisance parameter free Gaussian asymptotics and is shown to remain valid under flexible assumptions that can accommodate heteroskedasticity and the presence of mixed predictors (e.g. stationary and local to unit root). A local power analysis also establishes its ability to detect departures from the null in both stationary and persistent settings. Simulations calibrated to common economic and financial applications indicate that our methods have strong power with good size control across commonly encountered sample sizes.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Hansen, P.R. & A. Timmermann (2015) Equivalence between Out-of-Sample Forecast Comparisons and Wald Statistics | 1.000 | 5 | 3 | 100% |
| 2 | Clark, T.E. & M. W. McCracken (2001) Tests of equal forecast accuracy and encompassing for nested models | 0.843 | 3 | 3 | 100% |
| 3 | Clark, T.E. & M. W. McCracken (2005) Evaluating Direct Multistep Forecasts | 0.843 | 3 | 3 | 100% |
| 4 | Clark, T.E. & K. D. West (2007) Approximately normal tests for equal predictive accuracy in nested models | 0.811 | 4 | 2 | 100% |
| 5 | Diebold, F.X. & R. Mariano (1995) Comparing Predictive Accuracy | 0.737 | 3 | 2 | 100% |
| 6 | West, K (1996) Asymptotic Inference about Predictive Ability | 0.737 | 3 | 2 | 100% |
| 7 | Engel, C. & S. Wu (2021) Forecasting the U.S | 0.644 | 2 | 2 | 100% |
| 8 | McCracken, M (2007) Asymptotics for out of sample tests of Granger causality | 0.644 | 2 | 2 | 100% |
| 9 | Fan, J., Liao, Y. & J. Yao (2015) Power Enhancement in High Dimensional Cross-Sectional Tests | 0.511 | 2 | 1 | 100% |
| 10 | Granziera, E., Hubrich, K. & H. Moon (2014) Predictability Tests for a Small Number of Nested Models | 0.511 | 2 | 1 | 100% |
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arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.