A comparison of some out-of-sample tests of predictability in iterated multi-step-ahead forecasts

PM Pincheira, KD West - Research in Economics, 2016 - Elsevier
We consider tests of equal population forecasting ability when mean squared prediction
error is the metric for forecasting ability, the two competing models are nested, and the
iterated method is used to obtain multistep forecasts. We use Monte Carlo simulations to
explore the size and power of the MSPE-adjusted test of Clark and West (2006, 2007)(CW)
and the Diebold–Mariano–West (DMW) test. The empirical size of the CW test is almost
always tolerable: across a set of 252 simulation results that span 5 DGPs, 9 horizons, and …
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