Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/225629
Authors: 
Dimitriadis, Timo
Liu, Xiaochun
Schnaitmann, Julie
Year of Publication: 
2020
Series/Report no.: 
Hohenheim Discussion Papers in Business, Economics and Social Sciences 11-2020
Abstract: 
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.
Subjects: 
asymptotic theory on the boundary
joint elicitability
multi-step ahead and aggregate forecasts
forecast evaluation and combinations
JEL: 
C12
C52
C58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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