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Out-of-sample comparison of copula specifications in multivariate density forecasts

  • Diks, C.G.H.


    (Universiteit van Amsterdam)

  • Dijk, D. van


    (Erasmus Universiteit Rotterdam)

  • Panchenko, V.


    (University of New South Wales)

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 non-nested. 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 Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 08-10.

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Date of creation: 2008
Date of revision:
Handle: RePEc:ams:ndfwpp:08-10
Contact details of provider: Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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