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

Paul Goodwin, Fotios Petropoulos, Rob J. Hyndman

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)1082-1084
Number of pages3
JournalJournal of the Operational Research Society
Volume68
Issue number9
DOIs
Publication statusPublished - Sep 2017

Keywords

  • ARIMA models
  • forecast accuracy
  • forecasting

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