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A Predictive Model Evaluation and Selection Approach - The Correlated Gamma Ratio Distribution

Author

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  • Xekalaki, Evdokia
  • Panaretos, John
  • Psarakis, Stelios

Abstract

In this paper, an evaluation method is suggested for selecting one of two competing models based on certain predictive ability ratings. The main focus is on the case of linear models that are not necessarily nested. In the context of such models, the test procedure is based on a sample statistic whose distribution is shown to arise as the distribution of the ratio of two correlated gamma variables termed as the Correlated Gamma Ration Distribution. Percentage points of this distribution are obtained. The procedure is illustrated on real data.

Suggested Citation

  • Xekalaki, Evdokia & Panaretos, John & Psarakis, Stelios, 2003. "A Predictive Model Evaluation and Selection Approach - The Correlated Gamma Ratio Distribution," MPRA Paper 6389, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6389
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    File URL: https://mpra.ub.uni-muenchen.de/6389/1/MPRA_paper_6389.pdf
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    References listed on IDEAS

    as
    1. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages 85-118, Suppl. De.
    2. Panaretos, John & Psarakis, Stelios & Xekalaki, Evdokia & Karlis, Dimitris, 2005. "The Correlated Gamma-Ratio Distribution in Model Evaluation and Selection," MPRA Paper 6355, University Library of Munich, Germany.
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    Cited by:

    1. Xekalaki, Evdokia & Degiannakis, Stavros, 2005. "Evaluating volatility forecasts in option pricing in the context of a simulated options market," Computational Statistics & Data Analysis, Elsevier, vol. 49(2), pages 611-629, April.
    2. Stavros Degiannakis & Evdokia Xekalaki, 2007. "Assessing the performance of a prediction error criterion model selection algorithm in the context of ARCH models," Applied Financial Economics, Taylor & Francis Journals, vol. 17(2), pages 149-171.
    3. Vasilios Sogiakas, 2017. "Option trading for optimizing volatility forecasting," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 6(3), pages 1-3.
    4. Stavros Degiannakis & Evdokia Xekalaki, 2005. "Predictability and model selection in the context of ARCH models," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 21(1), pages 55-82, January.
    5. Xekalaki, Evdokia & Panaretos, John, 2004. "A Binomial Distribution With Dependent Trials And Its Use in Stochastic Model Evaluation," MPRA Paper 6393, University Library of Munich, Germany.

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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