Coroneo, Laura orcid.org/0000-0001-5740-9315 and Iacone, Fabrizio orcid.org/0000-0002-2681-9036 (Accepted: 2024) Testing for equal predictive accuracy with strong dependence. International journal of forecasting. ISSN 0169-2070 (In Press)
Abstract
We analyse the properties of the Diebold and Mariano (1995) test in the presence of autocorrelation in the loss differential. We show that the power of the Diebold and Mariano (1995) test decreases as the dependence increases, making it more difficult to obtain statistically significant evidence of superior predictive ability against less accurate benchmarks. We also find that, after a certain threshold, the test has no power and the correct null hypothesis is spuriously rejected. Taken together, these results caution to seriously consider the dependence properties of the loss differential before the application of the Diebold and Mariano (1995) test.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | This is an author-produced version of the published paper. Uploaded in accordance with the University’s Research Publications and Open Access policy. |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 04 Nov 2024 14:30 |
Last Modified: | 23 Jan 2025 05:25 |
Status: | In Press |
Refereed: | Yes |
Related URLs: | |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:219234 |