Correlation-based tests of predictability

IF 3.4 3区 经济学 Q1 ECONOMICS Journal of Forecasting Pub Date : 2024-03-05 DOI:10.1002/for.3081
Pablo Pincheira Brown, Nicolás Hardy
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Abstract

In this paper, we propose a correlation-based test for the evaluation of two competing forecasts. Under the null hypothesis of equal correlations with the target variable, we derive the asymptotic distribution of our test using the Delta method. This null hypothesis is not necessarily equivalent to the null of equal Mean Squared Prediction Errors (MSPE). Specifically, it might be the case that the forecast displaying the lowest MSPE also exhibits the lowest correlation with the target variable: this is known as “The MSPE paradox.” In this sense, our approach should be seen as complementary to traditional tests of equality in MSPE. Monte Carlo simulations indicate that our test has good size and power. Finally, we illustrate the use of our test in an empirical exercise in which we compare two different inflation forecasts for a sample of OECD economies. We find more rejections of the null of equal correlations than rejections of the null of equality in MSPE.

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基于相关性的可预测性测试
本文提出了一种基于相关性的检验方法,用于评估两个相互竞争的预测。在与目标变量相关性相等的零假设下,我们使用德尔塔法推导出我们检验的渐近分布。这个零假设并不一定等同于平均平方预测误差(MSPE)相等的零假设。具体来说,MSPE 最低的预测可能与目标变量的相关性也最低:这就是所谓的 "MSPE 悖论"。从这个意义上说,我们的方法应被视为对传统 MSPE 相等检验的补充。蒙特卡罗模拟表明,我们的检验具有良好的规模和功率。最后,我们通过对经合组织(OECD)经济体样本的两种不同通胀预测进行实证比较,来说明我们的检验方法。我们发现,对相等相关性空值的拒绝比对 MSPE 相等性空值的拒绝更多。
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来源期刊
CiteScore
5.40
自引率
5.90%
发文量
91
期刊介绍: The Journal of Forecasting is an international journal that publishes refereed papers on forecasting. It is multidisciplinary, welcoming papers dealing with any aspect of forecasting: theoretical, practical, computational and methodological. A broad interpretation of the topic is taken with approaches from various subject areas, such as statistics, economics, psychology, systems engineering and social sciences, all encouraged. Furthermore, the Journal welcomes a wide diversity of applications in such fields as business, government, technology and the environment. Of particular interest are papers dealing with modelling issues and the relationship of forecasting systems to decision-making processes.
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