Forecast Evaluation and Combination

Francis Diebold and Jose Lopez

No 192, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: It is obvious that forecasts are of great importance and widely used in economics and finance. Quite simply, good forecasts lead to good decisions. The importance of forecast evaluation and combination techniques follows immediately -- forecast users naturally have a keen interest in monitoring and improving forecast performance. More generally, forecast evaluation figures prominently in many questions in empirical economics and finance. We provide selective account of forecast evaluation and combination methods. First we discuss evaluation of a single forecast, and in particular, evaluation of whether and how it may be improved. Second, we discuss the evaluation and comparison of the accuracy of competing forecasts. Third, we discuss whether and how a set of forecasts may be combined to produce a superior composite forecast. Fourth, we describe a number of forecast evaluation topics of particular relevance in economics and finance, including methods for evaluating direction-of-change forecasts, probability forecasts and volatility forecasts.

JEL-codes: C5 (search for similar items in EconPapers)
Date: 1996-03
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (332)

Published as in G.S. Maddala and C.R. Rao (eds.), Handbook of Statistics. Amsterdam: North-Holland (1996).

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Working Paper: Forecast evaluation and combination (1995)
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