The Use of Encompassing Tests for Forecast Combinations

November 1, 2007

Preview Citation

Format: Chicago

Turgut Kisinbay. The Use of Encompassing Tests for Forecast Combinations, (USA: International Monetary Fund, 2007) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper proposes an algorithm that uses forecast encompassing tests for combining forecasts. The algorithm excludes a forecast from the combination if it is encompassed by another forecast. To assess the usefulness of this approach, an extensive empirical analysis is undertaken using a U.S. macroecoomic data set. The results are encouraging as the algorithm forecasts outperform benchmark model forecasts, in a mean square error (MSE) sense, in a majority of cases.

Subject: Economic forecasting, Factor models, Stocks

Keywords: Algorithm forecast, Data set, Null hypothesis, RMSE gain, Simple average, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/264
Stock No:

WPIEA2007264
ISBN:

9781451868272
ISSN:

1018-5941

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