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Improved methods of combining forecasts

Improved methods of combining forecasts It is well known that a linear combination of forecasts can outperform individual forecasts. The common practice, however, is to obtain a weighted average of forecasts, with the weights adding up to unity. This paper considers three alternative approaches to obtaining linear combinations. It is shown that the best method is to add a constant term and not to constrain the weights to add to unity. These methods are tested with data on forecasts of quarterly hog prices, both within and out of sample. It is demonstrated that the optimum method proposed here is superior to the common practice of letting the weights add up to one. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Forecasting Wiley

Improved methods of combining forecasts

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References (9)

Publisher
Wiley
Copyright
Copyright © 1984 John Wiley & Sons, Ltd.
ISSN
0277-6693
eISSN
1099-131X
DOI
10.1002/for.3980030207
Publisher site
See Article on Publisher Site

Abstract

It is well known that a linear combination of forecasts can outperform individual forecasts. The common practice, however, is to obtain a weighted average of forecasts, with the weights adding up to unity. This paper considers three alternative approaches to obtaining linear combinations. It is shown that the best method is to add a constant term and not to constrain the weights to add to unity. These methods are tested with data on forecasts of quarterly hog prices, both within and out of sample. It is demonstrated that the optimum method proposed here is superior to the common practice of letting the weights add up to one.

Journal

Journal of ForecastingWiley

Published: Apr 1, 1984

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