Selecting forecasting models for portfolio allocation

Adam Clements, Mark Doolan (), Stan Hurn and Ralf Becker ()
Additional contact information
Mark Doolan: QUT
Ralf Becker: University of Manchester

No 85, NCER Working Paper Series from National Centre for Econometric Research

Abstract: Techniques for evaluating and selecting multivariate volatility forecasts are not yet as well understood as their univariate counterparts. This paper considers the ability of different loss functions to discriminate between a competing set of forecasting models which are subsequently applied in a portfolio allocation context. It is found that a likelihood based loss function outperforms it competitors including those based on the given portfolio application. This result indicates that the particular application of forecasts is not necessarily the most effective approach under which to select models.

Keywords: Multivariate volatility; portfolio allocation; forecast evaluation; model selection; model confidence set (search for similar items in EconPapers)
JEL-codes: C22 G00 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-08-09
New Economics Papers: this item is included in nep-ecm and nep-for
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:qut:auncer:2012_8

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