Evaluation and Combination of Conditional Quantile Forecasts

Raffaella Giacomini (r.giacomini@ucl.ac.uk) and Ivana Komunjer

No 571, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper proposes a method for comparing and combining conditional quantile forecasts in an out-of-sample framework. We construct a Conditional Quantile Forecast Encompassing (CQFE) test as a Wald-type test of superior predictive ability. Rejection of CQFE provides a basis for combination of conditional quantile forecasts. Two central features of our implementation of the principle of encompassing are, first, the use of the 'tick' loss function and, second, a conditional, rather than unconditional approach to out-of-sample evaluation. Some of the advantages of the conditional approach are that it allows the forecasts to be generated by using general estimation procedures and that it is applicable when the forecasts are based on both nested and non-nested models. The test is also relatively easy to implement using standard GMM techniques. An empirical application to Value-at-Risk evaluation illustrates the usefulness of our method.

Keywords: Encompassing; Loss Function; GMM; Value at Risk (search for similar items in EconPapers)
JEL-codes: C12 C22 C52 C53 (search for similar items in EconPapers)
Date: 2003-06-01
New Economics Papers: this item is included in nep-ecm and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Evaluation and Combination of Conditional Quantile Forecasts (2005)
Working Paper: Evaluation and Combination of Conditional Quantile Forecasts (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:571

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