Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87513
Authors: 
Hoogerheide, Lennart F.
Ravazzolo, Francesco
van Dijk, Herman K.
Year of Publication: 
2011
Series/Report no.: 
Tinbergen Institute Discussion Paper 11-131/4
Abstract: 
Patton and Timmermann (2012, '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.
Subjects: 
Value-at-Risk
backtest
optimal revision
forecast rationality
JEL: 
C12
C52
C53
C58
G32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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