Backtesting Value-at-Risk using Forecasts for Multiple Horizons, a Comment on the Forecast Rationality Tests of A.J. Patton and A. Timmermann
Patton and Timmermann (2012, 'Forecast Rationality Tests Based on Multi-Horizon Bounds', Journal of Business & Economic Statistics, 30(1) 1-17) propose a set of useful tests for forecast rationality or optimality under squared error loss, including an easily implemented test based on a regression that only involves (long-horizon and short-horizon) forecasts and no observations on the target variable. We propose an extension, a simulation-based procedure that takes into account the presence of errors in parameter estimates. This procedure can also be applied in the field of 'backtesting' models for Value-at-Risk. Applications to simple AR and ARCH time series models show that its power in detecting certain misspecifications is larger than the power of well-known tests for correct Unconditional Coverage and Conditional Coverage.
Year of publication: |
2011
|
---|---|
Authors: | Hoogerheide, Lennart F. ; Ravazzolo, Francesco ; van Dijk, Herman K. |
Publisher: |
Amsterdam and Rotterdam : Tinbergen Institute |
Subject: | Value-at-Risk | backtest | optimal revision | forecast rationality |
Saved in:
freely available
Series: | Tinbergen Institute Discussion Paper ; 11-131/4 |
---|---|
Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 739331086 [GVK] hdl:10419/87513 [Handle] RePEc:dgr:uvatin:20110131 [RePEc] |
Classification: | C12 - Hypothesis Testing ; C52 - Model Evaluation and Testing ; C53 - Forecasting and Other Model Applications ; c58 ; G32 - Financing Policy; Capital and Ownership Structure |
Source: |
Persistent link: https://www.econbiz.de/10010326495