“Go Wild for a While!”: A New Test for Forecast Evaluation in Nested Models

Pablo Pincheira, Nicolás Hardy, Felipe Muñoz

Producción científica: Contribución a una revistaArtículorevisión exhaustiva

7 Citas (Scopus)


In this paper, we present a new asymptotically normal test for out-of-sample evaluation in nested models. Our approach is a simple modification of a traditional encompassing test that is commonly known as Clark and West test (CW). The key point of our strategy is to introduce an independent random variable that prevents the traditional CW test from becoming degenerate under the null hypothesis of equal predictive ability. Using the approach developed by West (1996), we show that in our test, the impact of parameter estimation uncertainty vanishes asymptotically. Using a variety of Monte Carlo simulations in iterated multi-step-ahead forecasts, we evaluated our test and CW in terms of size and power. These simulations reveal that our approach is reasonably well-sized, even at long horizons when CW may present severe size distortions. In terms of power, results were mixed but CW has an edge over our approach. Finally, we illustrate the use of our test with an empirical application in the context of the commodity currencies literature.

Idioma originalInglés
Número de artículo2254
EstadoPublicada - sep. 2021
Publicado de forma externa


Profundice en los temas de investigación de '“Go Wild for a While!”: A New Test for Forecast Evaluation in Nested Models'. En conjunto forman una huella única.

Citar esto