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Title: Tests of conditional predictive ability: Some simulation evidence Authors:  Michael McCracken - Federal Reserve Bank of St. Louis (United States) [presenting]
Abstract: Simple examples and associated simulations are used to investigate the size and power properties of tests of predictive ability. While we find that the tests can be accurately sized and powerful in large enough samples we identify details associated with the tests that are not otherwise apparent from the original text. In order of importance these include (i) the proposed test of equal finite-sample unconditional predictive ability is not asymptotically valid under the fixed scheme, (ii) for the same test, but when the rolling scheme is used, very large bandwidths are sometimes required when estimating long-run variances, and (iii) when conducting the proposed test of equal finite-sample conditional predictive ability, conditional heteroskedasticity is likely present when lagged loss differentials are used as instruments.