Determining risk model confidence sets

Mark Cummins, Michael Dowling and Francesco Esposito

Finance Research Letters, 2017, vol. 22, issue C, 169-174

Abstract: Two alternative approaches to identifying a model confidence set (MCS) are contrasted. Together with a specification of the established MCS test, we present a new version of a test that identifies a model set satisfying the MCS requirements and is characterised by an alternative model ranking p-value. We also contrast the two MCS approaches empirically, constructing a market risk model selection exercise for the Dow Jones Industrial Average. Our adapted MCS method is shown to lead to a smaller MCS, nested within the MCS determined by the popular MCS method, and allows greater distinction between models.

Keywords: Model confidence set; Model selection; Market risk models (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:22:y:2017:i:c:p:169-174

DOI: 10.1016/j.frl.2017.02.005

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