Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
9555378 | Journal of Econometrics | 2005 | 31 Pages |
Abstract
This paper presents analytical, Monte Carlo, and empirical evidence on the effects of structural breaks on tests for equal forecast accuracy and encompassing. We show that out-of-sample predictive content can be hard to find because out-of-sample tests are highly dependent on the timing of the predictive ability. Moreover, predictive content is harder to find with some tests than others: in power, F-type tests of equal forecast accuracy and encompassing often dominate t-type alternatives. Based on these results and evidence from an empirical application, we conclude that structural breaks under the alternative may explain why researchers often find evidence of in-sample, but not out-of-sample, predictive content.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Todd E. Clark, Michael W. McCracken,