Regression-Based Tests of Predictive Ability

Kenneth West () and Michael McCracken

Working papers from Wisconsin Madison - Social Systems

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.

Keywords: TESTS; FORECASTS; ECONOMIC MODELS (search for similar items in EconPapers)
JEL-codes: C12 C32 C52 C53 (search for similar items in EconPapers)
Pages: 44 pages
Date: 1997
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Regression-Based Tests of Predictive Ability (1998)
Working Paper: Regression-Based Tests of Predictive Ability (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:att:wimass:9710

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