 Evaluation and Combination of Conditional Quantile ForecastsRaffaella Giacomini () and Ivana Komunjer University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego Abstract: This paper proposes a method for comparing and combining conditional quantile forecasts based on the principle of 'encompassing'. Our test for conditional quantile forecast encompassing (CQFE) is a test of superior predictive ability, constructed as a Wald-type test on the coefficients of an optimal combination of alternative forecasts. The CQFE test is a 'model free' test that can be used to compare any given number of alternative forecasts, and is relatively easy to implement by GMM techniques appropriately modified to accommodate non-differentiable criterion functions. Further, our theoretical framework provides a basis for combining quantile forecasts, when neither forecast has superior predictive ability. A central feature of our method is the focus on conditional, rather than unconditional expected loss in the formulation of the encompassing test, which links our approach to Christoffersen's (1998) 'conditional coverage' test for evaluation of quantile forecasts. An empirical application to the problem of Value at Risk evaluation illustrates the usefulness of the proposed techniques. Keywords: encompassing; forcast combination; loss function; value at risk; GMM (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucsdec:qt4n99t4wz Access Statistics for this paper More papers in University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego Contact information at EDIRC. |
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