Regression-Based Tests of Predictive Ability

Kenneth D. West () and Michael McCracken ()

No 226, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop regression-based tests of hypotheses about out of sample prediction errors. Representative tests include ones for zero mean and zero correlation between a prediction error and a vector of predictors. The relevant environments are ones in which predictions depend on estimated parameters. We show that standard regression statistics generally fail to account for error introduced by estimation of these parameters. We propose computationally convenient test statistics that properly account for such error. Simulations indicate that the procedures can work well in samples of size typically available, although there sometimes are substantial size distortions.

JEL-codes: C52 C53 (search for similar items in EconPapers)
Date: 1998-03
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Related works:
Working Paper: Regression-Based Tests of Predictive Ability (1997)
Journal Article: Regression-Based Tests of Predictive Ability (1998)
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