The Estimation of the Prediction Error Variance

Abstract

Spectral methods are used to construct an estimate of the variance of the prediction error for a normal, stationary process. The estimate obtained is shown to be strongly consistent and asymptotically normally distributed. Some aspects of the computations with respect to the fast Fourier transform are considered. The latter half of the article consists of a number of simulations, based on both generated and real data, which illustrate the results obtained. The relation between the estimate and that obtained from a high order autoregression is discussed.

Key Words:

• Stationary time series
• Spectral density
• Prediction error variance
• Fast Fourier transform