SEM News

The paper “Infinite Markov Pooling of Predictive Distributions” by Dr. Qiao Yang has accepted for publication at Journal of Econometrics

Publish Time:2021-11-12

This paper introduces novel approaches to forecast pooling methods based on a nonparametric prior for a weight vector combining predictive densities. The first approach places a Dirichlet process prior on the weight vector and generalizes the static linear pool. The second approach uses a hierarchical Dirichlet process prior to allow the weight vector to follow an infinite hidden Markov chain. This generalizes dynamic prediction pools to the nonparametric setting. Efficient posterior simulation based on MCMC methods is also examined. Detailed applications to short-term interest rates, realized covariance matrices and asset pricing models demonstrate that the nonparametric pool forecasts well. The paper concludes with extensions and an application for calibrating and combining predictive densities. The paper is a joint work with Dr. Xin Jin (Shanghai University of Finance and Economics) and Dr. John Maheu (McMaster University).