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A State space approach to bootstrapping conditional forecasts in arma models
Author(s) -
WALL KENT D.,
STOFFER DAVID S.
Publication year - 2002
Publication title -
journal of time series analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.576
H-Index - 54
eISSN - 1467-9892
pISSN - 0143-9782
DOI - 10.1111/1467-9892.00288
Subject(s) - mathematics , bootstrapping (finance) , conditional variance , gaussian , autoregressive–moving average model , state space representation , state space , conditional expectation , conditional probability distribution , series (stratigraphy) , algorithm , econometrics , autoregressive model , statistics , autoregressive conditional heteroskedasticity , volatility (finance) , paleontology , physics , quantum mechanics , biology
A bootstrap approach to evaluating conditional forecast errors in ARMA models is presented. The key to this method is the derivation of a reverse‐time state space model for generating conditional data sets that capture the salient stochastic properties of the observed data series. We demonstrate the utility of the method using several simulation experiments for the MA( q ) and ARMA( p, q ) models. Using the state space form, we are able to investigate conditional forecast errors in these models quite easily whereas the existing literature has only addressed conditional forecast error assessment in the pure AR( p ) form. Our experiments use short data sets and non‐Gaussian, as well as Gaussian, disturbances. The bootstrap is found to provide useful information on error distributions in all cases and serves as a broadly applicable alternative to the asymptotic Gaussian theory.