Forecast Encompassing Tests for the Expected Shortfall
Copyright policy )Forecast Encompassing Tests for the Expected Shortfall
We introduce new forecast encompassing tests for the risk measure Expected Shortfall (ES). The ES currently receives much attention through its introduction into the Basel III Accords, which stipulate its use as the primary market risk measure for the international banking regulation. We utilize joint loss functions for the pair ES and Value at Risk to set up three ES encompassing test variants. The tests are built on misspecification robust asymptotic theory and we investigate the finite sample properties of the tests in an extensive simulation study. We use the encompassing tests to illustrate the potential of forecast combination methods for different financial assets.
International Journal of Forecasting (2020+, forthcoming)
- Duke University United States
- University of Konstanz Germany
- University of Hohenheim Germany
- Bayer (Germany) Germany
- Heidelberg Institute for Theoretical Studies Germany
info:eu-repo/classification/ddc/330, Econometrics (econ.EM), Mathematics - Statistics Theory, Statistics Theory (math.ST), FOS: Economics and business, Evaluating forecasts, Combining forecasts, Loss function, Model selection, Statistical tests, Risk Management (q-fin.RM), FOS: Mathematics, Quantitative Finance - Risk Management, Economics - Econometrics
info:eu-repo/classification/ddc/330, Econometrics (econ.EM), Mathematics - Statistics Theory, Statistics Theory (math.ST), FOS: Economics and business, Evaluating forecasts, Combining forecasts, Loss function, Model selection, Statistical tests, Risk Management (q-fin.RM), FOS: Mathematics, Quantitative Finance - Risk Management, Economics - Econometrics
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