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On the use of cross-sectional measures of forecast uncertainty

Driver, C., Trapani, L. and Urga, G. (2013). On the use of cross-sectional measures of forecast uncertainty. International Journal of Forecasting, 29(3), pp. 367-377. doi: 10.1016/j.ijforecast.2012.11.005

Abstract

This paper investigates the role of cross-sectional dependence among private forecasters, assessing its impact on the measurement and use of the forecasting uncertainty. We determine the circumstances under which cross-sectional measures of uncertainty (such as the disagreement across forecasters) are valid proxies for private information, and analyse the impact of distributional assumptions on private signals. In particular, we explore the role played by cross dependence among forecasters, arising from factors such as partially shared private information. We validate the theory through a Monte Carlo exercise, which reinforces our findings, as well as through an application to US nonfarm payroll data.

Publication Type: Article
Additional Information: NOTICE: this is the author’s version of a work that was accepted for publication in International Journal of Forecasting. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Journal of Forecasting, Volume 29, Issue 3, July–September 2013, Pages 367–377, http://dx.doi.org/10.1016/j.ijforecast.2012.11.005
Publisher Keywords: Forecast disagreement; Cross-sectional dependence; Uncertainty
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
Related URLs:
URI: http://openaccess.city.ac.uk/id/eprint/4873
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