Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/217017 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8266
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper introduces a new test of the predictive performance and market timing for categorical forecasts based on contingency tables when the user has non-categorical loss functions. For example, a user might be interested in the return of an underlying variable instead of just the direction. This new test statistic can also be used to determine whether directional forecasts are derived from non-directional forecasts and whether point forecast have predictive value when transformed into directional forecasts. The tests are applied to the categorical exchange rate forecasts in the ifo-Institute's World Economic Survey and to the point forecasts for quarterly GDP in the Philadelphia Fed's Survey of Professional Forecasters. We find that the loss function matters as exchange rate forecasters perform better under non-categorical loss functions, and the GDP forecasts have value up to two quarters ahead.
Subjects: 
contingency tables
categorical forecast
profitability
World Economic Survey
directional accuracy
market timing
forecast value
JEL: 
C12
C52
E37
F37
Document Type: 
Working Paper
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