Backtesting Value-at-Risk using Forecasts for Multiple Horizons, a Comment on the Forecast Rationality Tests of A.J. Patton and A. Timmermann

Lennart F. Hoogerheide, Francesco Ravazzolo and Herman van Dijk
Additional contact information
Lennart F. Hoogerheide: VU University Amsterdam

No 11-131/4, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Patton and Timmermann (2011, “Forecast Rationality Tests Based on Multi-Horizon Bounds”, Journal of Business & Economic Statistics , 30(1), 1-17) propose a set of useful tests for forecast rationality or optimality under squared error loss, including an easily implemented test based on a regression that only involves (long-horizon and short-horizon) forecasts and no observations on the target variable. We propose an extension, a simulation-based procedure that takes into account the presence of errors in parameter estimates. This procedure can also be applied in the field of 'backtesting' models for Value-at-Risk. Applications to simple AR and ARCH time series models show that its power in detecting certain misspecifications is larger than the power of well-known tests for correct Unconditional Coverage and Conditional Coverage.

Keywords: Value-at-Risk; backtest; optimal revision; forecast rationality (search for similar items in EconPapers)
JEL-codes: C12 C52 C53 C58 G32 (search for similar items in EconPapers)
Date: 2011-09-20
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://papers.tinbergen.nl/11131.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20110131

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().