Approximating conditional distribution functions using dimension reduction

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Publication:2569246



Abstract: Motivated by applications to prediction and forecasting, we suggest methods for approximating the conditional distribution function of a random variable Y given a dependent random d-vector X. The idea is to estimate not the distribution of Y|X, but that of Y| heta^TX, where the unit vector heta is selected so that the approximation is optimal under a least-squares criterion. We show that heta may be estimated root-n consistently. Furthermore, estimation of the conditional distribution function of Y, given heta^TX, has the same first-order asymptotic properties that it would enjoy if heta were known. The proposed method is illustrated using both simulated and real-data examples, showing its effectiveness for both independent datasets and data from time series. Numerical work corroborates the theoretical result that heta can be estimated particularly accurately.





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