Department of Economics and Business Economics

On loss functions and ranking forecasting performances of multivariate volatility models

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

  • S. Laurent, Maastricht University
  • ,
  • J.V.K. Rombouts, ESSEC Business School
  • ,
  • Francesco Violante
The ranking of multivariate volatility models is inherently problematic because when the unobservable volatility is substituted by a proxy, the ordering implied by a loss function may be biased with respect to the intended one. We point out that the size of the distortion is strictly tied to the level of the accuracy of the volatility proxy. We propose a generalized necessary and sufficient functional form for a class of non-metric distance measures of the Bregman type which ensure consistency of the ordering when the target is observed with noise. An application to three foreign exchange rates is provided.
Original languageEnglish
JournalJournal of Econometrics
Volume173
Issue1
Pages (from-to)1-10
Number of pages10
ISSN0304-4076
DOIs
Publication statusPublished - 1 Mar 2013

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