Partial Likelihood-Based Scoring Rules for Evaluating Density Forecast in Tails

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Econometrics Seminar
University of Pennsylvania

3718 Locust Walk
410 McNeil

Philadelphia, PA

United States

Joint with: Cees Diks & Valentyn Panchenko

We propose new scoring rules based on partial likelihood for assessing the relative out-of-sample predictive accuracy of competing density forecasts over a specific region of interest, such as the left tail in financial risk management.
By construction,existing scoring rules based on weighted likelihood or censored normal likelihood favor density forecasts with more probability mass in the given region, rendering predictive accuracy tests biased towards such densities.
Our novel partial likelihoodbased scoring rules do not suffer from this problem, as illustrated by means of Monte Carlo simulations and an empirical application to daily S&P 500 index returns.

For more information, contact Frank Schorfheide.

Dick Van Dijk

Eramus University Rotterdam

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