Entropy‐based benchmarking methods. (30th August 2018)

• Record Type: Journal Article
• Authors: Temursho, Umed
• Other Names: Chen Baoline guestEditor.; Di Fonzo Tommaso guestEditor.; Mushkudiani Nino guestEditor.
• Is Part Of: Statistica Neerlandica. Volume 72:Number 4(2018)
• Page Start: 421
• Page End: 446
• Publication Date: 2018-08-30
• Subjects: benchmarking -- generalized cross‐entropy estimator -- mathematical models -- movement and sign preservation principle; Statistics -- Periodicals; 519.5; 314.92
• DOI: 10.1111/stan.12160
• Languages: English
• ISSNs: 0039-0402

Abstract

Abstract : This paper argues that benchmarking of sign‐volatile time series has to be based on the principle of movement and sign preservation, which requires the benchmarked series to reproduce both the short‐term movements and signs of the original series. It is shown that the widely used variants of Denton method and the Causey‐Trager growth rate preservation method may violate this principle. Four variants of entropy‐based benchmarking methods are proposed that, by construction, account for the requirements of the movement and sign preservation principle. Our extensive simulations confirm that the proposed entropy methods can be regarded as plausible competitors for the well‐established benchmarking methods and may even be preferred in cases of benchmarking series that are highly volatile in sign and/or movements.