Forecasting Binary Outcomes

Handbook of Economic Forecasting, Vol. 2, G. Elliott and A. Timmermann, eds., Forthcoming

99 Pages Posted: 2 Dec 2012

See all articles by Kajal Lahiri

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics

Liu Yang

Nanjing University - School of Business; State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics

Date Written: September 20, 2012

Abstract

Binary events are involved in many economic decision problems. In recent years, considerable progress has been made in diverse disciplines in developing models for forecasting binary outcomes. We distinguish between two types of forecasts for binary events that are generally obtained as the output of regression models: probability forecasts and point forecasts. We summarize specification, estimation, and evaluation of binary response models for the purpose of forecasting in a unified framework which is characterized by the joint distribution of forecasts and actuals, and a general loss function. Analysis of both the skill and the value of probability and point forecasts can be carried out within this framework. Parametric, semiparametric, nonparametric, and Bayesian approaches are covered. The emphasis is on the basic intuitions underlying each methodology, abstracting away from the mathematical details.

Keywords: Probability Prediction, Point Prediction, Skill, Value, Joint Distribution

JEL Classification: C40, C50, C53, C80

Suggested Citation

Lahiri, Kajal and Yang, Liu, Forecasting Binary Outcomes (September 20, 2012). Handbook of Economic Forecasting, Vol. 2, G. Elliott and A. Timmermann, eds., Forthcoming. Available at SSRN: https://ssrn.com/abstract=2183413

Kajal Lahiri (Contact Author)

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics ( email )

Department of Economics
1400 Washington Avenue
Albany, NY 12222
United States
518-442 4758 (Phone)
518-442 4736 (Fax)

HOME PAGE: http://www.albany.edu/~klahiri

Liu Yang

Nanjing University - School of Business

22 Hankou Road
Nanjing, Jiangsu 210093 210093
China

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics ( email )

1400 Washington Ave
Albany, NY 12222
United States
518-442-4735 (Phone)
518-442-4736 (Fax)

HOME PAGE: http://www.albany.edu/economics/

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