Forecasting Methods in Finance
Allan Timmermann ()
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Allan Timmermann: Rady School of Management, University of California, San Diego, La Jolla, California 92093, USA
Annual Review of Financial Economics, 2018, vol. 10, issue 1, 449-479
Our review highlights some of the key challenges in financial forecasting problems and opportunities arising from the unique features of financial data. We analyze the difficulty of establishing predictability in an environment with a low signal-to-noise ratio, persistent predictors, and instability in predictive relations arising from competitive pressures and investors’ learning. We discuss approaches for forecasting the mean, variance, and probability distribution of asset returns. Finally, we discuss how to evaluate financial forecasts while accounting for the possibility that numerous forecasting models may have been considered, leading to concerns of data mining.
Keywords: model instability; market efficiency; out-of-sample forecasting; return predictability; forecast evaluation (search for similar items in EconPapers)
JEL-codes: G17 C53 C58 (search for similar items in EconPapers)
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