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Luca Margaritella . Photo

Luca Margaritella

Associate senior lecturer

Luca Margaritella . Photo

New tests of equal forecast accuracy for factor-augmented regressions with weaker loadings

Author

  • Luca Margaritella
  • Ovidijus Stauskas

Summary, in English

We provide the theoretical foundation for the recent tests of equal forecast accuracy and encompassing by Pitarakis (2023) and Pitarakis (2025), when the competing forecast specification is that of a factor-augmented regression model. This should be of interest to practitioners, as there is no theory justifying the use of these simple and powerful tests in such a context. In pursuit of this, we employ a novel theory to incorporate the empirically well-documented fact of homogeneously/heterogeneously weak factor loadings, and track their effect on the forecast comparison problem.

Department/s

  • Department of Economics

Publishing year

2026-01-20

Language

English

Publication/Series

International Journal of Forecasting

Document type

Journal article

Publisher

Elsevier

Topic

  • Economics

Keywords

  • Forecast accuracy
  • Factor-augmented regressions
  • Weak loadings
  • Principal component analysis (PCA)
  • Nested models

Status

Epub

ISBN/ISSN/Other

  • ISSN: 0169-2070