The forecast evaluation literature has traditionally focused on methods of assessing point forecasts. However, in the context of many models of financial risk, interest centers on more than just a single point of the forecast distribution. For example, value-at-risk models that are currently in extremely wide use form interval forecasts. Many other important financial calculations also involve estimates not summarized by a point forecast. Although some techniques are currently available for assessing interval and density forecasts, existing methods tend to display low power in sample sizes typically available. This article suggests a new approach to evaluating such forecasts. It requires evaluation of the entire forecast distribution, rather than a scalar or interval. The information content of forecast distributions combined with ex post realizations is enough to construct a powerful test even with sample sizes as small as 100.
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Volume (Year): 19 (2001) Issue (Month): 4 (October) Pages: 465-74 Download reference. The following formats are available: HTML
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