Predictive density accuracy tests
Corradi, Valentina and Swanson, Norman R. (Norman Rasmus), 1964- (2004) Predictive density accuracy tests. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.04-).
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This paper outlines a testing procedure for assessing the relative out-of-sample predictive accuracy of multiple conditional distribution models, and surveys existing related methods in the area of predictive density evaluation, including methods based on the probability integral transform and the Kullback-Leibler Information Criterion. The procedure is closely related to Andrews’ (1997) conditional Kolmogorov test and to White’s (2000) reality check approach, and involves comparing square (approximation) errors associated with models i, i = 1, ..., n, by constructing weighted averages over U of E
Fi(u|Zt, !†i ) − F0(u|Zt, !0)
, where F0(·|·) and Fi(·|·) are true and approximate
distributions, u # U, and U is a possibly unbounded set on the real line. Appropriate bootstrap procedures for
obtaining critical values for tests constructed using this measure of loss in conjunction with predictions obtained
via rolling and recursive estimation schemes are developed. We then apply these bootstrap procedures to the case
of obtaining critical values for our predictive accuracy test. A Monte Carlo experiment comparing our bootstrap
methods with methods that do not include location bias adjustment terms is provided, and results indicate coverage
improvement when our proposed bootstrap procedures are used. Finally, an empirical example comparing alternative
predictive densities for U.S. inflation is given.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Bootstrap (Statistics), Estimation theory, Distribution (Economic theory), Monte Carlo method|
|Series Name:||Working papers (Warwick Business School. Financial Econometrics Research Centre)|
|Publisher:||Warwick Business School, Financial Econometrics Research Centre|
|Place of Publication:||Coventry|
|Official Date:||February 2004|
|Number of Pages:||54|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
|Grant number:||RES-000-23-0006 (ESRC)|
Andrews, D.W.K., (1997), A Conditional Kolmogorov Test, Econometrica, 65, 1097-1128.
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