Encompassing tests for value at risk and expected shortfall multi-step forecasts based on inference on the boundary

Dimitriadis, Timo; Liu, Xiaochun; Schnaitmann, Julie

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Dimitriadis, Timo ; Liu, Xiaochun ; Schnaitmann, Julie

Encompassing tests for value at risk and expected shortfall multi-step forecasts based on inference on the boundary

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URN: urn:nbn:de:bsz:100-opus-18131
URL: http://opus.uni-hohenheim.de/volltexte/2020/1813/

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SWD-Schlagwörter:

Prognose , Value at risk

Freie Schlagwörter (Englisch):

asymptotic theory on the boundary , joint elicitability , multi-step ahead and aggregate forecasts , forecast evaluation and combinations

Institut:

Institut für Volkswirtschaftslehre

DDC-Sachgruppe:

Wirtschaft

Dokumentart:

ResearchPaper

Schriftenreihe:

Hohenheim discussion papers in business, economics and social sciences

Bandnummer:

2020,11

Sprache:

Englisch

Erstellungsjahr:

2020

Publikationsdatum:

20.10.2020

Lizenz:

Veröffentlichungsvertrag mit der Universitätsbibliothek Hohenheim

Kurzfassung auf Englisch:

We propose forecast encompassing tests for the Expected Shortfall (ES) jointly with the Value at Risk (VaR) based on flexible link (or combination) functions.
Our setup allows testing encompassing for convex forecast combinations and for link functions which preclude crossings of the combined VaR and ES forecasts. As the tests based on these link functions involve parameters which are on the boundary of the parameter space under the null hypothesis, we derive and base our tests on nonstandard asymptotic theory on the boundary. Our simulation study shows that the encompassing tests based on our new link functions outperform tests based on unrestricted linear link functions for one-step and multi-step forecasts. We further illustrate the potential of the proposed tests in a real data analysis for forecasting VaR and ES of the S&P 500 index.