ON THE SIZE CONTROL OF THE HYBRID TEST FOR SUPERIOR PREDICTIVE ABILITY

Deborah Kim

Econometric Theory, 2024, vol. 40, issue 1, 213-232

Abstract: This article analyzes the theoretical properties of the hybrid test for superior predictive ability. A simple example reveals that the test may not be size-controlled at common significance levels with rejection rates exceeding $11\%$ at a $5\%$ nominal level. Generalizing this observation, the main results show the pointwise asymptotic invalidity of the hybrid test under reasonable conditions. Monte Carlo simulations support these theoretical findings.

Date: 2024
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