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Predictive density construction and accuracy testing with multiple possibly misspecified diffusion models

  • Corradi, Valentina
  • Swanson, Norman R.

This paper develops tests for comparing the accuracy of predictive densities derived from (possibly misspecified) diffusion models. In particular, we first outline a simple simulation-based framework for constructing predictive densities for one-factor and stochastic volatility models. We then construct tests that are in the spirit of Diebold and Mariano (1995) and White (2000). In order to establish the asymptotic properties of our tests, we also develop a recursive variant of the nonparametric simulated maximum likelihood estimator of Fermanian and Salanié (2004). In an empirical illustration, the predictive densities from several models of the one-month federal funds rates are compared.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 161 (2011)
Issue (Month): 2 (April)
Pages: 304-324

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Handle: RePEc:eee:econom:v:161:y:2011:i:2:p:304-324
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. Jushan Bai, 2003. "Testing Parametric Conditional Distributions of Dynamic Models," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 531-549, August.
  2. Valentina Corradi & Norman Swanson, 2006. "Predictive Density Evaluation. Revised," Departmental Working Papers 200621, Rutgers University, Department of Economics.
  3. BONTEMPS, Christian & MEDDAHI, Nour, 2002. "Testing Normality : A GMM Approach," Cahiers de recherche 2002-14, Universite de Montreal, Departement de sciences economiques.
  4. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  5. Norman Swanson & Valentina Corradi, 2006. "Nonparametric Bootstrap Procedures for Predictive Inference Based on Recursive Estimation Schemes," Departmental Working Papers 200618, Rutgers University, Department of Economics.
  6. Singleton, Kenneth J., 2001. "Estimation of affine asset pricing models using the empirical characteristic function," Journal of Econometrics, Elsevier, vol. 102(1), pages 111-141, May.
  7. Samuel Thompson, 2008. "Identifying Term Structure Volatility from the LIBOR-Swap Curve," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 819-854, April.
  8. Valentina Corradi & Norman Swanson, 2004. "Predictive Density Evaluation," Departmental Working Papers 200419, Rutgers University, Department of Economics.
  9. Valentina Corradi & Norman R. Swanson, 2003. "Evaluation of Dynamic Stochastic General Equilibrium Models Based on Distributional Comparison of Simulated and Historical Data," Departmental Working Papers 200320, Rutgers University, Department of Economics.
  10. Corradi, Valentina & Swanson, Norman R., 2006. "Predictive density and conditional confidence interval accuracy tests," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 187-228.
  11. Aït-Sahalia, Yacine & Fan, Jianqing & Peng, Heng, 2009. "Nonparametric Transition-Based Tests for Jump Diffusions," Journal of the American Statistical Association, American Statistical Association, vol. 104(487), pages 1102-1116.
  12. Valentina Corradi & Norman Swanson & Geetesh Bhardwaj, 2006. "A Simulation Based Specification Test for Diffusion Processes," Departmental Working Papers 200614, Rutgers University, Department of Economics.
  13. Yacine Ait-Sahalia, 1995. "Testing Continuous-Time Models of the Spot Interest Rate," NBER Working Papers 5346, National Bureau of Economic Research, Inc.
  14. Dridi, Ramdan & Guay, Alain & Renault, Eric, 2007. "Indirect inference and calibration of dynamic stochastic general equilibrium models," Journal of Econometrics, Elsevier, vol. 136(2), pages 397-430, February.
  15. Valentina Corradi & Norman R. Swanson, 2003. "Bootstrap Specification Tests for Diffusion Processes," Departmental Working Papers 200321, Rutgers University, Department of Economics.
  16. Filippo Altissimo & Antonio Mele, 2009. "Simulated Non-Parametric Estimation of Dynamic Models," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 413-450.
  17. Duffie, Darrell & Singleton, Kenneth J, 1993. "Simulated Moments Estimation of Markov Models of Asset Prices," Econometrica, Econometric Society, vol. 61(4), pages 929-52, July.
  18. Federico M. Bandi & Roberto Reno, 2009. "Nonparametric Stochastic Volatility," Global COE Hi-Stat Discussion Paper Series gd08-035, Institute of Economic Research, Hitotsubashi University.
  19. Per Frederiksen & Frank S. Nielsen, 2008. "Estimation of Dynamic Models with Nonparametric Simulated Maximum Likelihood," CREATES Research Papers 2008-59, School of Economics and Management, University of Aarhus.
  20. Tauchen, George E. & Gallant, A. Ronald, 1995. "Which Moments to Match," Working Papers 95-20, Duke University, Department of Economics.
  21. Yongmiao Hong, 2005. "Nonparametric Specification Testing for Continuous-Time Models with Applications to Term Structure of Interest Rates," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 37-84.
  22. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  23. Carrasco, Marine & Chernov, Mikhail & Florens, Jean-Pierre & Ghysels, Eric, 2007. "Efficient estimation of general dynamic models with a continuum of moment conditions," Journal of Econometrics, Elsevier, vol. 140(2), pages 529-573, October.
  24. Valentina Corradi & Norman R. Swanson, 2003. "A Test for Comparing Multiple Misspecified Conditional Distributions," Departmental Working Papers 200314, Rutgers University, Department of Economics.
  25. Kristensen, Dennis & Shin, Yongseok, 2012. "Estimation of dynamic models with nonparametric simulated maximum likelihood," Journal of Econometrics, Elsevier, vol. 167(1), pages 76-94.
  26. Jiang, George J & Knight, John L, 2002. "Estimation of Continuous-Time Processes via the Empirical Characteristic Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 198-212, April.
  27. Bjørn Eraker & Michael Johannes & Nicholas Polson, 2003. "The Impact of Jumps in Volatility and Returns," Journal of Finance, American Finance Association, vol. 58(3), pages 1269-1300, 06.
  28. Halbert White, 2000. "A Reality Check for Data Snooping," Econometrica, Econometric Society, vol. 68(5), pages 1097-1126, September.
  29. Pritsker, Matt, 1998. "Nonparametric Density Estimation and Tests of Continuous Time Interest Rate Models," Review of Financial Studies, Society for Financial Studies, vol. 11(3), pages 449-87.
  30. Fermanian, Jean-David & Salani , Bernard, 2004. "A Nonparametric Simulated Maximum Likelihood Estimation Method," Econometric Theory, Cambridge University Press, vol. 20(04), pages 701-734, August.
  31. Durham, Garland B., 2003. "Likelihood-based specification analysis of continuous-time models of the short-term interest rate," Journal of Financial Economics, Elsevier, vol. 70(3), pages 463-487, December.
  32. repec:bla:restud:v:76:y:2009:i:2:p:413-450 is not listed on IDEAS
  33. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De.
  34. Corradi, Valentina & Swanson, Norman R., 2005. "A Test For Comparing Multiple Misspecified Conditional Interval Models," Econometric Theory, Cambridge University Press, vol. 21(05), pages 991-1016, October.
  35. Chacko, George & Viceira, Luis M., 2003. "Spectral GMM estimation of continuous-time processes," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 259-292.
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