Dynamic Predictive Density Combinations for Large Data Sets in Economics and Finance

Arbeitspapier

A Bayesian nonparametric predictive model is introduced to construct time-varying weighted combinations of a large set of predictive densities. A clustering mechanism allocates these densities into a smaller number of mutually exclusive subsets. Using properties of the Aitchinson's geometry of the simplex, combination weights are defined with a probabilistic interpretation. The classpreserving property of the logistic-normal distribution is used to define a compositional dynamic factor model for the weight dynamics with latent factors defined on a reduced dimension simplex. Groups of predictive models with combination weights are updated with parallel clustering and sequential Monte Carlo filters. The procedure is applied to predict Standard & Poor's 500 index using more than 7000 predictive densities based on US individual stocks and finds substantial forecast and economic gains. Similar forecast gains are obtained in point and density forecasting of US real GDP, Inflation, Treasury Bill yield and employment using a large data set.

Object Details

• ISBN: 978-82-7553-875-6
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 12/2015

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Statistical Simulation Methods: General ; Forecasting Models; Simulation Methods ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
• Subject: GPU computing ; Bayesian inference ; density combination ; large set of predictive densities ; compositional factor models ; nonlinear state space

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Casarin, Roberto ; Grassi, Stefano ; Ravazzolo, Francesco ; van Dijk, Herman K.
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/210079
• Last update: 10.03.2025, 11:42 AM CET