Before revision:  Forecasting and forecast evaluation techniques for the ES are rapidly gaining attention through the recently introduced Basel III Accords, which stipulate the use of the ES as primary market risk measure for the international banking regulations. Encompassing tests generally rely on the existence of strictly consistent loss functions for the functionals under consideration, which do not exist for the ES . However, our encompassing tests are based on recently introduced loss functions and an associated regression framework which considers the ES jointly with the corresponding Value at Risk (VaR).
After revision:  Forecasting and forecast evaluation techniques for the ES are rapidly gaining attention through the recently introduced Basel III Accords, which stipulate the use of the ES as primary market risk measure for the international banking regulation. We utilize joint loss functions for the functionals under consideration, which do not exist for the ES . However, our encompassing tests are based on recently introduced loss functions and an associated regression framework which considers the ES jointly with the corresponding Value at Risk (VaR).