Testing for unreliable estimators and insignificant forecasts in combined forecasts

Testing for unreliable estimators and insignificant forecasts in combined forecasts

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Article ID: iaor19951558
Country: United Kingdom
Volume: 13
Issue: 7
Start Page Number: 611
End Page Number: 624
Publication Date: Dec 1994
Journal: International Journal of Forecasting
Authors: , ,
Keywords: combining forecasts
Abstract:

The reliability and precision of the weights used in combining individual forecasts, irrespective of the method of combination, is important in evaluating a combined forecast. The objective of this study is not to suggest the ‘best’ method of combining individual forecasts, but rather to propose exploratory procedures, that make use of all available sample information contained in the covariance matrix of individual forecast errors, to (1) detect if the weights used in combining forecasts are ‘reliable’ (and ‘stable’ if it is known that the covariance matrix of forecast errors is stationary over time) and (2) test for ‘insignificant’ individual forecasts used in forming a combined forecast. The paper presents empirical applications using two-year sales and individual forecast data provided by a major consumer durables manufacturer to illustrate the feasibility of the proposed procedures.

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