Automatic Portmanteau Tests with Applications to Market Risk Management. (December 2017)

• Record Type: Journal Article
• Authors: Zhu, Guangwei; Du, Zaichao; Escanciano, Juan Carlos
• Is Part Of: Stata journal. Volume 17:Number 4(2017)
• Page Start: 901
• Page End: 915
• Publication Date: 2017-12
• Subjects: st0504 -- dbptest -- rtau -- autocorrelation -- consistency -- power -- Akaike's information criterion -- Schwarz's Bayesian information criterion -- market risk; Statistics -- Periodicals; Statistics -- Computer programs -- Periodicals; 001.422
• DOI: 10.1177/1536867X1801700408
• Languages: English
• ISSNs: 1536-867X

Abstract

In this article, we review some recent advances in testing for serial correlation, provide code for implementation, and illustrate this code's application to market risk forecast evaluation. We focus on the classic and widely used portmanteau tests and their data-driven versions. These tests are simple to implement for two reasons: First, the researcher does not need to specify the order of the tested autocorrelations, because the test automatically chooses this number. Second, its asymptotic null distribution is chi-squared with one degree of freedom, so there is no need to use a bootstrap procedure to estimate the critical values. We illustrate the wide applicability of this methodology with applications to forecast evaluation for market risk measures such as value-at-risk and expected shortfall.