Out-of-Sample Forecast Tests Robust to the Window Size Choice

48 Pages Posted: 29 Mar 2011

See all articles by Barbara Rossi

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics

Atsushi Inoue

Southern Methodist University

Date Written: January 16, 2011

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 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' Â’forecasting ability.

Keywords: Predictive Ability Testing, Forecast Evaluation, Estimation Window

JEL Classification: C22, C52, C53

Suggested Citation

Rossi, Barbara and Inoue, Atsushi, Out-of-Sample Forecast Tests Robust to the Window Size Choice (January 16, 2011). Economic Research Initiatives at Duke Working Paper No. 94, Available at SSRN: https://ssrn.com/abstract=1798727

Barbara Rossi (Contact Author)

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Atsushi Inoue

Southern Methodist University ( email )

Dallas, TX 75275
United States

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