Confidence Bands for ROC Curves with Serially Dependent Data

46 Pages Posted: 10 Jul 2015

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: July 8, 2015

Abstract

We propose serial correlation-robust asymptotic confidence bands for the receiver operating characteristic (ROC) curve and its functional, viz. the area under ROC curve (AUC), estimated by quasi-maximum likelihood in the binormal model. Our simulation experiments confirm that this new method performs fairly well in finite samples, and confers an additional measure of robustness to non-normality. The conventional procedure is found to be markedly undersized in terms of yielding empirical coverage probabilities lower than the nominal level, especially when the serial correlation is strong. An example from macroeconomic forecasting demonstrates the importance of accounting for serial correlation when the probability forecasts for real GDP declines are evaluated using ROC.

Keywords: Receiver operating characteristic curve, AUC, Binormal model, Quasi-maximum likelihood, Serial correlation, Survey of Professional Forecasters, Robustness to skewness and excess kurtosis

JEL Classification: C01, C12, C13, C15, C22, C25, C51, C53, E17, E37

Suggested Citation

Lahiri, Kajal and Yang, Liu, Confidence Bands for ROC Curves with Serially Dependent Data (July 8, 2015). Forthcoming in Journal of Business & Economic Statistics. Available at SSRN: https://ssrn.com/abstract=2628179

Kajal Lahiri

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 (Contact Author)

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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