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Bagging Binary Predictors for Time Series

  • Yang Yang
  • Tae-Hwy Lee

Bootstrap aggregating or Bagging, introduced by Breiman (1996a), has been proved to be effective to improve on unstable forecast. Theoretical and empirical works using classification, regression trees, variable selection in linear and non-linear regression have shown that bagging can generate substantial prediction gain. However, most of the existing literature on bagging have been limited to the cross sectional circumstances with symmetric cost functions. In this paper, we extend the application of bagging to time series settings with asymmetric cost functions, particularly for predicting signs and quantiles. We link quantile predictions to binary predictions in a unified framwork. We find that bagging may improve the accuracy of unstable predictions for time series data under certain conditions. Various bagging forecast combinations are used such as equal weighted and Bayesian Model Averaging (BMA) weighted combinations. For demonstration, we present results from Monte Carlo experiments and from empirical applications using monthly S&P500 and NASDAQ stock index returns

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 512.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:512
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