SHERP

Relationship of Forecast Encompassing to Composite Forecasts with Simulations and an Application

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Authors
Liang, Kuoyuan; Ryu, Keunkwan
Issue Date
2003
Publisher
Seoul Journal of Economics
Citation
Seoul Journal of Economics 16 (No. 3 2003): 363-386
Keywords
Choice of forecasts; Composite forecasts; Monte-Carlo simulation
Abstract
This paper examines the role of forecast-encompassing principles in model-specification searches through the use of linear composite forecasts. Based on the results of the pairwise forecast-encompassing test, this paper outlines a conceptual framework to provide some useful insights on cross-model evaluations in econometrics and the selection of predictors in composite forecasts. Second, it offers three different ways of performing the encompassing test and compares their finite sample performance through a Monte Carlo simulation study. Test results guide researchers to choose component forecasts and thus to avoid blind pooling in the combining regression.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/1302
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.16(3) (Fall 2003)
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