Generic Conditions for Forecast Dominance

Fabian Krüger and Johanna F. Ziegel

Journal of Business & Economic Statistics, 2021, vol. 39, issue 4, 972-983

Abstract: Recent studies have analyzed whether one forecast method dominates another under a class of consistent scoring functions. While the existing literature focuses on empirical tests of forecast dominance, little is known about the theoretical conditions under which one forecast dominates another. To address this question, we derive a new characterization of dominance among forecasts of the mean functional. We present various scenarios under which dominance occurs. Unlike existing results, our results allow for the case that the forecasts’ underlying information sets are not nested, and allow for uncalibrated forecasts that suffer, for example, from model misspecification or parameter estimation error. We illustrate the empirical relevance of our results via data examples from finance and economics.

Date: 2021
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Citations: View citations in EconPapers (12)

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DOI: 10.1080/07350015.2020.1741376

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