Statistical tests for multiple forecast comparison

• Main Authors: MARIANO, Roberto, PREVE, Daniel P. A.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Econometrics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2331; https://ink.library.smu.edu.sg/context/soe_research/article/3330/viewcontent/Statistical_Tests_for_Multiple_Forecast.pdf
• Institution: Singapore Management University

We consider a multivariate version of the Diebold–Mariano test for equal predictive ability of three or more forecasting models. The Wald-type test, S, which has a null distribution that is asymptotically chi-squared, is shown to be generally invariant with respect to the ordering of the models being compared. Finite-sample corrections for the test are also developed. Monte Carlo simulations indicate that S has reasonable size properties in large samples but tends to be oversized in moderate samples. The finite-sample correction succeeds in correcting for size, but only partially. For the size-adjusted tests, power increases with sample size, as expected. It is speculated that further finite-sample improvements can be achieved using Hotelling’s T2 or bootstrap critical values.