Application of Stein Rules to Combination Forecasting

Thomas Fomby and Subarna K Samanta

Journal of Business & Economic Statistics, 1991, vol. 9, issue 4, 391-407

Abstract: The authors propose some Stein-rule combination forecasting methods that are designed to ameliorate the estimation of risk inherent in making operational the variance-covariance method for constructing combination weights. By Monte Carlo simulation, it is shown that this amelioration can be substantial in many cases. Moreover, generalized Stein-rule combinations are proposed that offer the user the opportunity to enhance combination forecasting performance when shrinking the feasible variance-covariance weights toward a fortuitous shrinkage point. In an empirical exercise, the proposed Stein-rule combinations performed well relative to competing combination methods.

Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:bes:jnlbes:v:9:y:1991:i:4:p:391-407

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