In-sample tests of predictive ability: A new approach

Todd Clark and Michael McCracken

Journal of Econometrics, 2012, vol. 170, issue 1, 1-14

Abstract: This paper presents evidence linking in-sample tests of predictive content and out-of-sample forecast accuracy. Our approach focuses on the negative effect that finite-sample estimation error has on forecast accuracy despite the presence of significant population-level predictive content. We derive in-sample tests that assess whether a variable has predictive content and whether this content is estimated precisely enough to improve forecast accuracy. Our tests are asymptotically non-central chi-square or non-central normal. We provide a convenient bootstrap for computing critical values. In Monte Carlo and empirical analysis, we examine the effectiveness of our testing procedure.

Keywords: Predictability; Forecast accuracy; In-sample (search for similar items in EconPapers)
JEL-codes: C12 C52 C53 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (20)

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Related works:
Working Paper: In-sample tests of predictive ability: a new approach (2009)
Working Paper: In-sample tests of predictive ability: a new approach (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:170:y:2012:i:1:p:1-14

DOI: 10.1016/j.jeconom.2010.09.012

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