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A statistical test for forecast evaluation under a discrete loss function

Eransus, Francisco J. and Novales Cinca, Alfonso (2011) A statistical test for forecast evaluation under a discrete loss function. [Working Paper or Technical Report] (Unpublished)

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Abstract

We propose a new approach to evaluating the usefulness of a set of forecasts, based on the use of a discrete loss function defined on the space of data and forecasts. Existing procedures for such an evaluation either do not allow for formal testing, or use tests statistics based just on the frequency distribution of (data , forecasts)-pairs. They can easily lead to misleading conclusions in some reasonable situations, because of the way they formalize the underlying null hypothesis that "the set of forecasts is not useful". Even though the ambiguity of the underlying null hypothesis precludes us from per-forming a standard analysis of the size and power of the tests, we get results suggesting that the proposed DISC test performs better than its competitors.

Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Forecasting Evaluation, Loss Function
Subjects:Social sciences > Economics > Econometrics
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2011
Number:07
ID Code:12521
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Deposited On:04 Apr 2011 08:58
Last Modified:12 Mar 2014 11:02

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