Arbeitspapier

Testing directional forecast value in the presence of serial correlation

Common approaches to test for the economic value of directional forecasts are based on the classical Chi-square test for independence, Fisher’s exact test or the Pesaran and Timmerman (1992) test for market timing. These tests are asymptotically valid for serially independent observations. Yet, in the presence of serial correlation they are markedly oversized as confirmed in a simulation study. We summarize serial correlation robust test procedures and propose a bootstrap approach. By means of a Monte Carlo study we illustrate the relative merits of the latter. Two empirical applications demonstrate the relevance to account for serial correlation in economic time series when testing for the value of directional forecasts.

Language
Englisch

Bibliographic citation
Series: SFB 649 Discussion Paper ; No. 2008,073

Classification
Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Model Evaluation, Validation, and Selection
Forecasting Models; Simulation Methods
General Aggregative Models: Forecasting and Simulation: Models and Applications
Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
Money and Interest Rates: Forecasting and Simulation: Models and Applications
Trade: Forecasting and Simulation
International Finance Forecasting and Simulation: Models and Applications
Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications
Portfolio Choice; Investment Decisions
Financial Forecasting and Simulation
Subject
Directional forecasts
directional accuracy
forecast evaluation
testing independence
contingency tables
bootstrap
Prognoseverfahren
Zeitreihenanalyse
Korrelation
Statistischer Test
Qualitatives Verfahren
Bootstrap-Verfahren
Theorie

Event
Geistige Schöpfung
(who)
Blaskowitz, Oliver J.
Herwartz, Helmut
Event
Veröffentlichung
(who)
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
(where)
Berlin
(when)
2008

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Blaskowitz, Oliver J.
  • Herwartz, Helmut
  • Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk

Time of origin

  • 2008

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