This paper illustrates the importance of density forecasting and forecast evaluation
in portfolio decision making. The decision making environment is fully described for
an investor seeking to optimally allocate her portfolio between long and short Treasury
Bills, over investment horizons of up to two years. We examine the impact of parameter
uncertainty and predictability in bond returns on the investorís allocation and we
describe how the forecasts are computed and used in this context. Both statistical
and decision-based criteria are used to assess the predictability of returns. Our results
show sensitivity to the evaluation criterion used and in the context of investment
decision making under an economic value criterion, we Önd some potential gain for
the investor from assuming predictability.
History
School
Business and Economics
Department
Business
Published in
Journal of Forecasting
Volume
35
Issue
2
Pages
93-112
Citation
SIRICHAND, K and HALL, S.G., 2016. Decision-based forecast evaluation of UK interest rate predictability. Journal of Forecasting, 35(2), pp.93-112.
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/
Acceptance date
2015-08-18
Publication date
2015-10-15
Copyright date
2016
Notes
This is the peer reviewed version of the following article: SIRICHAND, K and HALL, S.G., 2016. Decision-based forecast evaluation of UK interest rate predictability. Journal of Forecasting, 35(2), pp.93-112., which has been published in final form at http://dx.doi.org/10.1002/for.2369. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.