On Monday, February 12 at 12.10, room 3211 (Shabolovka str. 26) ICEF and FES held the Job Market Seminar.
Speaker: Ekaterina Smetanina (University of Cambridge)
Theme: "Forecast Evaluation Tests - a New Approach"
Venue: Shabolovka st., 26, room 3211
Abstract: Out-of-sample tests are widely used for evaluating and selecting between models’ forecasts in economics and finance. Underlying these tests is often the assumption of constant relative performance between competing models, however this is invalid for many practical applications. In a world of changing relative performance, previous methodologies give rise to spurious and potentially misleading results, an example of which is the well-known “splitting point problem”. We propose a new two-step methodology designed specifically for forecast evaluation in a world of changing relative performance. In the first step we estimate the time-varying mean and variance of the series for forecast loss differences, and in the second step we use these estimates to compare and rank models in a changing world. We show that our tests have high power against a variety of fixed and local alternatives.