Decision-based forecast evaluation of UK interest rate predictability
journal contributionposted on 2015-12-07, 10:55 authored by Kavita SirichandKavita Sirichand, S.G. Hall
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.
- Business and Economics
Published inJournal of Forecasting
CitationSIRICHAND, K and HALL, S.G., 2016. Decision-based forecast evaluation of UK interest rate predictability. Journal of Forecasting, 35(2), pp.93-112.
- AM (Accepted Manuscript)
Publisher statementThis 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/
NotesThis 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.