Approximating conditional distribution functions using dimension reduction

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|θ^TX, where the unit vector θis selected so that the approximation is optimal under a least-squares criterion. We show that θmay be estimated root-n consistently. Furthermore, estimation of the conditional distribution function of Y, given θ^TX, has the same first-order asymptotic properties that it would enjoy if θwere 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 θcan be estimated particularly accurately.

Published at http://dx.doi.org/10.1214/009053604000001282 in the Annals of Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical Statistics (http://www.imstat.org)