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A statistical test for forecast evaluation under a discrete loss function

Francisco Javier Eransus and Alfonso Novales
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Francisco Javier Eransus: Facultad de Ciencias Económicas y Empresariales. Universidad Complutense de Madrid.

No 2014-24, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: We propose a new approach to evaluating the usefulness of a set of forecasts, based on the use of a discrete loss function de…ned on the space of data and forecasts. Existing procedures for such an evaluation either do not allow for formal testing, or use tests statistics based just on the frequency distribution of (data, forecasts)-pairs. They can easily lead to misleading conclusions in some reasonable situations, because of the way they formalize the underlying null hypothesis that ‘the set of forecasts is not useful.’ Even though the ambiguity of the underlying null hypothesis precludes us from performing a standard analysis of the size and power of the tests, we get results suggesting that the proposed DISC test performs better than its competitors.

Keywords: Forecasting Evaluation; Loss Function. (search for similar items in EconPapers)
JEL-codes: C12 C52 C53 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2014
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Working Paper: A statistical test for forecast evaluation under a discrete loss function (2011) Downloads
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