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Thread: Diebold and Mariano Test

  1. #1
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    Diebold and Mariano Test


    I'm currently writing an article about stock return predictability.
    I have 2 predictive regression models, where I calculated for both the forecast error.
    Now based on the Diebold-Mariano Test, I want to test whether the 2 sets of forecast errors have equal mean value.

    My problem is that I don't fully understand how this test works.
    As I understand, I need to regress the differences of the forecast error against a constant and look if this constant is signficant or not. Buf therefore I need to calculate the corresponding statistic for testing the equal forecast accuracy hypothesis.

    I put the formula of the Diebold-Mariano test in attachment as well as an illustration in excel.

    I'm not an expert in Statistics and I'm trying to understand this test but without any success... Is there someone who is familiar with this test and could explain me a bit how exactly the test works?

    Many many thanks for your help,
    Attached Files

  2. #2
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    Re: Diebold and Mariano Test

    Dear Mathieu,
    i'm dealing with a problem similar about how to run the Diabold-Mariano test to compare forescast produced by different model. If you have already solv your problem i will be very gratefull to know the solution.
    Many tanks

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