Bayesian calibration of generalized pools of predictive distributions

Decision-makers often consult different experts to build reliable forecasts on variables of interest. Combining more opinions and calibrating them to maximize the forecast accuracy is consequently a crucial issue in several economic problems. This paper applies a Bayesian beta mixture model to deriv...

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Bibliographic Details
Published in:Econometrics 2016-03, Vol.4 (1), p.1-24
Main Authors: Casarin, Roberto, Mantoan, Giulia, Ravazzolo, Francesco
Format: Article
Language:English
Subjects:
Bayesian inference
beta mixtures
density forecast
forecast calibration
forecast combination
MCMC sampling
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Summary:Decision-makers often consult different experts to build reliable forecasts on variables of interest. Combining more opinions and calibrating them to maximize the forecast accuracy is consequently a crucial issue in several economic problems. This paper applies a Bayesian beta mixture model to derive a combined and calibrated density function using random calibration functionals and random combination weights. In particular, it compares the application of linear, harmonic and logarithmic pooling in the Bayesian combination approach. The three combination schemes, i.e., linear, harmonic and logarithmic, are studied in simulation examples with multimodal densities and an empirical application with a large database of stock data. All of the experiments show that in a beta mixture calibration framework, the three combination schemes are substantially equivalent, achieving calibration, and no clear preference for one of them appears. The financial application shows that the linear pooling together with beta mixture calibration achieves the best results in terms of calibrated forecast.
ISSN:2225-1146
2225-1146
DOI:10.3390/econometrics4010017