Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86957
Authors: 
Diks, Cees
Panchenko, Valentyn
van Dijk, Dick
Year of Publication: 
2008
Series/Report no.: 
Tinbergen Institute Discussion Paper 08-105/4
Abstract: 
We introduce a statistical test for comparing the predictive accuracy of competing copula specifications in multivariate density forecasts, based on the Kullback-Leibler Information Criterion (KLIC). The test is valid under general conditions: in particular it allows for parameter estimation uncertainty and for the copulas to be nested or non-nested. Monte Carlo simulations demonstrate that the proposed test has satisfactory size and power properties in finite samples. Applying the test to daily exchange rate returns of several major currencies against the US dollar we find that the Student's t copula is favored over Gaussian, Gumbel and Clayton copulas. This suggests that these exchange rate returns are characterized by symmetric tail dependence.
Subjects: 
Copula-based density forecast
semiparametric statistics
out-of-sample forecast evaluation
Kullback-Leibler Information Criterion
empirical copula
JEL: 
C12
C14
C32
C52
C53
Document Type: 
Working Paper

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