Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2008-05-20 Number: 08-050/4 Author-Name: Cees Diks Author-Email: firstname.lastname@example.org Author-Workplace-Name: University of Amsterdam Author-Name: Valentyn Panchenko Author-Email: email@example.com Author-Workplace-Name: University of New South Wales Author-Name: Dick van Dijk Author-Email: firstname.lastname@example.org Author-Workplace-Name: Erasmus University Rotterdam Title: Partial Likelihood-Based Scoring Rules for Evaluating Density Forecasts in Tails Abstract: This discussion paper led to a publication in the 'Journal of Econometrics', 2011, 163, 215-230.
We propose new scoring rules based on partial likelihood for assessing the relative out-of-sample predictive accuracy of competing density forecasts over a specific region of interest, such as the left tail in financial risk management. By construction, existing scoring rules based on weighted likelihood or censored normal likelihood favor density forecasts with more probability mass in the given region, rendering predictive accuracy tests biased towards such densities. Our novel partial likelihood-based scoring rules do not suffer from this problem, as illustrated by means of Monte Carlo simulations and an empirical application to daily S&P 500 index returns. Classification-JEL: C12; C22; C52; C53 Keywords: density forecast evaluation; scoring rules; weighted likelihood ratio scores; partial likelihood; risk management File-Url: http://papers.tinbergen.nl/08050.pdf File-Format: application/pdf File-Size: 415786 bytes Handle: RePEc:tin:wpaper:20080050