D. van Dijk
- Out-of-sample comparison of copula specifications in multivariate density forecasts
- Journal of Economic Dynamics & Control
- Volume | Issue number
- 34 | 9
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
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 on the competing copulas: 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-t copula is favored over Gaussian, Gumbel and Clayton copulas.
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- NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Dynamics & Control. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Dynamics & Control, 34,9, (30 june 2010). http://dx.doi.org/10.1016/j.jedc.2010.06.021
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