nep-for New Economics Papers
on Forecasting
Issue of 2010‒07‒10
five papers chosen by
Rob J Hyndman
Monash University

  1. Variable Selection, Estimation and Inference for Multi-period Forecasting Problems By M. Hashem Pesaran; Andreas Pick; Allan Timmermann
  2. A Dynamical Model for Forecasting Operational Losses By Marco Bardoscia; Roberto Bellotti
  3. Economic cycles and term structure:application to Brazil By Fernandes Ribeiro, Priscila; Pereira, Pedro L. Valls
  4. Safety-First and Portfolio Selection: An Econometric Study for Pakistan's Banking Sector By J L Ford; Zahid Muhammad
  5. Optimizing a basket against the efficient market hypothesis By Fr\'ed\'eric Abergel; Mauro Politi

  1. By: M. Hashem Pesaran; Andreas Pick; Allan Timmermann
    Abstract: This paper conducts a broad-based comparison of iterated and direct multi-period forecasting approaches applied to both univariate and multivariate models in the form of parsimonious factor-augmented vector autoregressions. To account for serial correlation in the residuals of the multi-period direct forecasting models we propose a new SUREbased estimation method and modified Akaike information criteria for model selection. Empirical analysis of the 170 variables studied by Marcellino, Stock and Watson (2006) shows that information in factors helps improve forecasting performance for most types of economic variables although it can also lead to larger biases. It also shows that finitesample modifications to the Akaike information criterion can modestly improve the performance of the direct multi-period forecasts.
    Keywords: Multi-period forecasts; direct and iterated methods; factor augmented VARs
    JEL: C22 C32 C52 C53
    Date: 2010–06
  2. By: Marco Bardoscia; Roberto Bellotti
    Abstract: A novel dynamical model for the study of operational risk in banks is proposed. The equation of motion takes into account the interactions among different bank's processes, the spontaneous generation of losses via a noise term and the efforts made by the banks to avoid their occurrence. A scheme for the estimation of some parameters of the model is illustrated, so that it can be tailored on the internal organizational structure of a specific bank. We focus on the case in which there are no causal loops in the matrix of couplings and exploit the exact solution to estimate also the parameters of the noise. The scheme for the estimation of the parameters is proved to be consistent and the model is shown to exhibit a remarkable capability in forecasting future cumulative losses.
    Date: 2010–06
  3. By: Fernandes Ribeiro, Priscila; Pereira, Pedro L. Valls
    Abstract: The objective of this work is to describe the behavior of the economiccycle in Brazil through Markov processes which can jointly model the slopefactor of the yield curve, obtained by the estimation of the Nelson-SiegelDynamic Model by the Kalman filter and a proxy variable for economicperformance, providing some forecasting measure for economic cycles.
    Date: 2010–06–29
  4. By: J L Ford; Zahid Muhammad
    Abstract: A.D. Roy's original formulation of the Safety-First Principle is used to derive models of the portfolio composition of the banking sector in Pakistan. To estimate the models we use data for 1964-2005 and for 2005-2008 for forecasting. Various models are estimated, wherein loads are segrated into their various classes, with and without restrictions implied by the theory, such as symmetry on asset characteristics and the equivalent of Engel conditions. The best specification of the system of asset demand equations is a dynamic version which allows for adjustment costs or adjustment constraints in the alignment of the portfolio. It is also demonstrated that a model that diaggregates the various types of bank loans dominates one wherein they are treated as perfect substitutes. The superior model provides information on the complements and the substitutes amongst the assets that conforms to economic intuition. That model also fits the data well.
    Keywords: Safety-First Principle, asset demand equations, symmetry, homogeneity, adding-up constraints, dynamic adjustment, disaggregation versus aggregation of loans
    JEL: G11 G21
    Date: 2010–06
  5. By: Fr\'ed\'eric Abergel; Mauro Politi
    Abstract: The possibility that the collective dynamics of a set of stocks could lead to a specific basket violating the efficient market hypothesis is investigated. Precisely, we show that it is systematically possible to form a basket with a non-trivial autocorrelation structure when the examined time scales are at the order of tens of seconds. Moreover, we show that this situation is persistent enough to allow some kind of forecasting.
    Date: 2010–06

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