Equivalence Between Out-of-Sample Forecast Comparisons and Wald Statistics

Abstract

We demonstrate the asymptotic equivalence between commonly used test statistics for out-of-sample forecasting performance and conventional Wald statistics. This equivalence greatly simplifies the computational burden of calculating recursive out-of-sample test statistics and their critical values. For the case with nested models, we show that the limit distribution, which has previously been expressed through stochastic integrals, has a simple representation in terms of -distributed random variables and we derive its density. We also generalize the limit theory to cover local alternatives and characterize the power properties of the test.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 49 citations exist upstream.