SIRICHAND, K and HALL, S.G., 2016. Decision-based forecast evaluation of UK interest rate predictability. Journal of Forecasting, 35(2), pp.93-112.
This paper illustrates the importance of density forecasting and forecast evaluation
in portfolio decision making. The decision making environment is fully described for
an investor seeking to optimally allocate her portfolio between long and short Treasury
Bills, over investment horizons of up to two years. We examine the impact of parameter
uncertainty and predictability in bond returns on the investorís allocation and we
describe how the forecasts are computed and used in this context. Both statistical
and decision-based criteria are used to assess the predictability of returns. Our results
show sensitivity to the evaluation criterion used and in the context of investment
decision making under an economic value criterion, we Önd some potential gain for
the investor from assuming predictability.
This paper is in closed access until 15th Oct 2017.