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Decision-Based Forecast Evaluation of UK Interest Rate Predictability

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journal contribution
posted on 21.08.2015, 09:28 by K. Sirichand, Stephen 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 investor's 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 find some potential gain for the investor from assuming predictability.

Funding

Stephen Hall would like to acknowledge the support of ESRC Grant Number RES-062-23-1753

History

Citation

Journal of Forecasting, 2015

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCE/Department of Economics

Version

AM (Accepted Manuscript)

Published in

Journal of Forecasting

Publisher

Wiley

issn

0277-6693

eissn

1099-131X

Copyright date

2015

Available date

15/10/2017

Publisher version

http://onlinelibrary.wiley.com/doi/10.1002/for.2369/abstract

Notes

JEL Classifications: C32, C53, E43, E47, G11

Language

en