Lukas Bauer, Ekaterina Kazak
arXiv 27 May 2025 · Econometrics
arXiv:2505.21278 · PDF · DOI · OpenAlex · Extracted main text
This paper proposes a Conditional Method Confidence Set (CMCS) which allows to select the best subset of forecasting methods with equal predictive ability conditional on a specific economic regime. The test resembles the Model Confidence Set by Hansen et al. (2011) and is adapted for conditional forecast evaluation. We show the asymptotic validity of the proposed test and illustrate its properties in a simulation study. The proposed testing procedure is particularly suitable for stress-testing of financial risk models required by the regulators. We showcase the empirical relevance of the CMCS using the stress-testing scenario of Expected Shortfall. The empirical evidence suggests that the proposed CMCS procedure can be used as a robust tool for forecast evaluation of market risk models for different economic regimes.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Borup, Daniel, Eriksen, Jonas N., Kjær, Mads M., Thyrsgaard, Martin (2024) Predicting Bond Return Predictability | 1.000 | 8 | 4 | 100% |
| 2 | Giacomini, Raffaella, White, Halbert (2006) Tests of Conditional Predictive Ability | 0.983 | 20 | 4 | 95% |
| 3 | (2019) Minimum Capital Requirements for Market Risk, Technical Report, Basel Committee on Banking Supervision | 0.928 | 4 | 3 | 100% |
| 4 | Hansen, Peter R., Lunde, Asger, Nason, James M (2011) The model confidence set | 0.924 | 19 | 6 | 79% |
| 5 | Borup, Daniel, Thyrsgaard, Martin (2017) Statistical tests for equal predictive ability across multiple forecasting methods | 0.644 | 2 | 2 | 100% |
| 6 | Marcus, Ruth, Eric, Peritz, Gabriel, K. R (1976) On closed testing procedures with special reference to ordered analysis of variance | 0.644 | 2 | 2 | 100% |
| 7 | Li, Jia, Liao, Zhipeng, Quaedvlieg, Rogier (2022) Conditional Superior Predictive Ability | 0.585 | 3 | 1 | 100% |
| 8 | Li, Jia, Liao, Zhipeng (2020) Uniform nonparametric inference for time series | 0.511 | 2 | 1 | 100% |
| 9 | Arnold, Sebastian, Gavrilopoulos, Georgios, Schulz, Benedikt, Ziegel… (2024) Sequential model confidence sets | 0.405 | 1 | 1 | 100% |
| 10 | Barone–Adesi, Giovanni, Giannopoulos, Kostas, Vosper, Les (1999) VaR without correlations for portfolios of derivative securities | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 27 scored citations.