Targeting Predictors Via Partial Distance Correlation With Applications to Financial Forecasting

Kashif Yousuf, Yang Feng

Research output: Contribution to journalArticlepeer-review

Abstract

High-dimensional time series datasets are becoming increasingly common in various fields of economics and finance. Given the ubiquity of time series data, it is crucial to develop efficient variable screening methods that use the unique features of time series. This article introduces several model-free screening methods based on partial distance correlation and developed specifically to deal with time-dependent data. Methods are developed both for univariate models, such as nonlinear autoregressive models with exogenous predictors (NARX), and multivariate models such as linear or nonlinear VAR models. Sure screening properties are proved for our methods, which depend on the moment conditions, and the strength of dependence in the response and covariate processes, amongst other factors. We show the effectiveness of our methods via extensive simulation studies and an application on forecasting U.S. market returns.

Original languageEnglish (US)
JournalJournal of Business and Economic Statistics
DOIs
StateAccepted/In press - 2021

Keywords

  • Distance correlation
  • High dimensionality
  • Screening
  • Sure independence time series
  • Variable screening
  • Variable selection

ASJC Scopus subject areas

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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