Journal
JOURNAL OF ECONOMETRICS
Volume 170, Issue 1, Pages 1-14Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jeconom.2010.09.012
Keywords
Predictability; Forecast accuracy; In-sample
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This paper presents evidence linking in-sample tests of predictive content and out-of-sample forecast accuracy. Our approach focuses on the negative effect that finite-sample estimation error has on forecast accuracy despite the presence of significant population-level predictive content. We derive in-sample tests that assess whether a variable has predictive content and whether this content is estimated precisely enough to improve forecast accuracy. Our tests are asymptotically non-central chi-square or non-central normal. We provide a convenient bootstrap for computing critical values. In Monte Carlo and empirical analysis, we examine the effectiveness of our testing procedure. (c) 2012 Elsevier B.V. All rights reserved.
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