A note on upper bounds for forecast-value-added relative to naïve forecasts

Paul Goodwin (), Fotios Petropoulos () and Rob Hyndman
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Paul Goodwin: University of Bath
Fotios Petropoulos: University of Bath

Journal of the Operational Research Society, 2017, vol. 68, issue 9, 1082-1084

Abstract: Abstract In forecast value added analysis, the accuracy of relatively sophisticated forecasting methods is compared to that of naïve 1 forecasts to see whether the extra costs and effort of implementing them are justified. In this note, we derive a ratio that indicates the upper bound of a forecasting method’s accuracy relative to naïve 1 forecasts when the mean squared error is used to measure one-period-ahead accuracy. The ratio is applicable when a series is stationary or when its first differences are stationary. Formulae for the ratio are presented for several exemplar time series processes.

Keywords: forecasting; forecast accuracy; ARIMA models (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1057/s41274-017-0218-3

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