Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152629
Authors: 
Inoue, Atsushi
Kilian, Lutz
Year of Publication: 
2002
Series/Report no.: 
ECB Working Paper 195
Abstract: 
It is widely known that significant in-sample evidence of predictability does not garantuee significant out-of-sample predictability. This is often interpreted as an indiciation that in-sample evidence is likely to be spurious and should be discounted. In this paper we question this conventional wisdom. Our analysis shows that neither data mining nor parameter instability is a plausible explanation of the observed tendency of in-smaple tests to reject the no predictability null more often than out-of-sample tests. We provide an alternative explanation based on the higher power of in-sample tests of predictability. We conclude that results of in-sample tests of predictability will typically be more credible than results of out-of-sample tests.
Subjects: 
Data mining
Out-of-sample inference
Predictability text
Structural change
JEL: 
C12
C22
C52
Document Type: 
Working Paper

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