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Comparing Predictive Accuracy, Twenty Years Later: A Personal Perspective on the Use and Abuse of Diebold-Mariano Tests

18 Pages Posted: 11 Sep 2012  

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: September 7, 2012

Abstract

The Diebold-Mariano (DM) test was intended for comparing forecasts; it has been, and remains, useful in that regard. The DM test was not intended for comparing models. Unfortunately, however, much of the large subsequent literature uses DM-type tests for comparing models, in (pseudo-) out-of-sample environments. In that case, much simpler yet more compelling full-sample model comparison procedures exist; they have been, and should continue to be, widely used. The hunch that (pseudo-) out-of-sample analysis is somehow the “only," or “best," or even a “good" way to provide insurance against in-sample over fitting in model comparisons proves largely false. On the other hand, (pseudo-) out-of-sample analysis may be useful for learning about comparative historical predictive performance.

Keywords: Forecasting, model comparison, model selection, out-of-sample tests

JEL Classification: C01, C53

Suggested Citation

Diebold, Francis X., Comparing Predictive Accuracy, Twenty Years Later: A Personal Perspective on the Use and Abuse of Diebold-Mariano Tests (September 7, 2012). PIER Working Paper No. 12-035. Available at SSRN: https://ssrn.com/abstract=2144210 or http://dx.doi.org/10.2139/ssrn.2144210

Francis X. Diebold (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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