✦ LIBER ✦

Robust evaluation of fixed-event forecast rationality

✍ Scribed by Michael P. Clements; Nick Taylor

Publisher: John Wiley and Sons
Year: 2001
Tongue: English
Weight: 124 KB
Volume: 20
Category: Article
ISSN: 0277-6693
DOI: 10.1002/for.806

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

In this paper we introduce a new testing procedure for evaluating the rationality of fixed‐event forecasts based on a pseudo‐maximum likelihood estimator. The procedure is designed to be robust to departures in the normality assumption. A model is introduced to show that such departures are likely when forecasters experience a credibility loss when they make large changes to their forecasts. The test is illustrated using monthly fixed‐event forecasts produced by four UK institutions. Use of the robust test leads to the conclusion that certain forecasts are rational while use of the Gaussian‐based test implies that certain forecasts are irrational. The difference in the results is due to the nature of the underlying data. Copyright © 2001 John Wiley & Sons, Ltd.

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