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Relationship of Forecast Encompassing to Composite Forecasts with Simulations and an Application
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- Authors
- Issue Date
- 2003-07
- Citation
- Seoul Journal of Economics, Vol.16 No.3, pp. 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
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