The model confidence set - choosing between models

University essay from Lunds universitet/Nationalekonomiska institutionen

Author: Jeanette Johansson; [2005]

Keywords: forecasting; forecasting error; hypothesis testing; model selection; Economics; econometrics; economic theory; economic systems; economic policy; Nationalekonomi; ekonometri; ekonomisk teori; ekonomiska system; ekonomisk politik; Business and Economics;

Abstract: My data consists of closing prices between January 2000 and December 2004. My interest is, by looking at the return, to apply the Model Confidence Set. I work with ten volatility models. The Model Confidence Set is analogous to a confidence interval of a specific parameter. This means that the Model Confidence Set is used to choose model/models that is/are considered to be "best". The empirical exercise is based on ten models, and by applying the method I came to the conclusion that the Asymmetric Garch (1,1) was inferior compared to the other models.

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