Cees Diks () (University of Amsterdam) Valentyn Panchenko () (School of Economics, University of New South Wales) Dick van Dijk () (Econometric Institute, Erasmus University Rotterdam)
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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: in particular it allows for parameter estimation uncertainty and for the copulas to be nested or nonnested. 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’s t copula is favored over Gaussian, Gumbel and Clayton copulas. This suggests that these exchange rate returns are characterized by symmetric tail dependence.
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number
2008-23.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Andrew J. Patton, 2006.
"Modelling Asymmetric Exchange Rate Dependence,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 527-556, 05.
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