| Abstract: | This paper extends the method of using linear composites of forecasts for testing the efficiency of one forecast compared to a finite collection of other forecasts. It also gives necessary and sufficient conditions for forecast optimality in the mean square error sense. Information sets are found to be unnecessary for forecast optimality. Finally, the paper shows that a consistent test of forecast optimality cannot in general be obtained using linear composites. A similar conclusion applies to tests of specification optimality based on linear composites. |
