Paper #1404

Title:

Out-of-sample forecast tests robust to the choice of window size

Authors:

Barbara Rossi and Atsushi Inoue

Date:

April 2012

Abstract:

This paper proposes new methodologies for evaluating out-of-sample forecasting performance that are robust to the choice of the estimation window size. The methodologies involve evaluating the predictive ability of forecasting models over a wide range of window sizes. We show that the tests proposed in the literature may lack the power to detect predictive ability and might be subject to data snooping across different window sizes if used repeatedly. An empirical application shows the usefulness of the methodologies for evaluating exchange rate models' forecasting ability.

Keywords:

Predictive Ability Testing, Forecast Evaluation, Estimation Window.

JEL codes:

C22, C52, C53

Area of Research:

Macroeconomics and International Economics / Statistics, Econometrics and Quantitative Methods

Published in:

Journal of Business and Economic Statistics, 30 (3), 432-453, 2012

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