A note on upper bounds for forecast-value-added relative to naïve forecasts. Issue 9 (1st September 2017)

• Record Type: Journal Article
• Authors: Goodwin, Paul; Petropoulos, Fotios; Hyndman, Rob J.
• Is Part Of: Journal of the Operational Research Society. Volume 68:Issue 9(2017)
• Page Start: 1082
• Page End: 1084
• Publication Date: 2017-09-01
• Subjects: forecasting -- forecast accuracy -- ARIMA models; Operations research -- Periodicals; 658.4034
• DOI: 10.1057/s41274-017-0218-3
• Languages: English
• ISSNs: 0160-5682

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.