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Evaluating Density Forecasts via the Copula Approach
Company: Vanderbilt University
Company Url: Click here to open
Year Of Publication: 2003
Month Of Publication: September
Pages: 12
Download Count: 4
View Count: 1261
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 8-29-2010
Publisher: Administrator
Summary
In this paper, we develop a general approach for constructing simple tests for the correct density forecasts, or equivalently, for i.i.d. uniformity of appropriately transformed random variables. It is based on nesting a series of i.i.d. uniform random variables into a class of copula based stationary Markov processes. As such, it can be used to test for i.i.d. uniformity against alternative processes that exhibit a wide variety of marginal properties and temporal dependence properties, including skewed and fat-tailed marginal distributions, asymmetric dependence, and positive tail dependence. In addition, we develop tests for the dependence structure of the forecasting model that are robust to possible misspecification of the marginal distribution.
This document is published in Finance Research Letters, volume 1, number 1 (2004), pp. 74-84.
Author(s)
Chen, Xiaohong Sign in to follow this author
Fan, Yanqin Sign in to follow this author
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