Combining Forecasts: Performance and Coherence

Thomson, Mary, Pollock, Andrew C., Önkal, Dilek and Gönül, Sinan (2019) Combining Forecasts: Performance and Coherence. International Journal of Forecasting, 35 (2). pp. 474-484. ISSN 0169-2070

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In many forecasting contexts, there is general agreement that combining individual predictions leads to better final forecasts. Yet, the relative error reduction in a combined forecast is dependent upon the degree to which the component forecasts contain unique/independent information. Unfortunately, in many situations, obtaining independent predictions is difficult as these forecasts may be based on similar statistical models and/or overlapping information. The current study addresses this problem by incorporating a measure of coherence into an analytic evaluation framework so that degree of independence between sets of forecasts can easily be identified. The framework also decomposes the performance and coherence measures to illustrate the underlying aspects that are responsible for error reduction. The framework is demonstrated using UK Retail Prices Index inflation forecasts for the period 1998-2014 and implications for forecast users are discussed.

Item Type: Article
Subjects: G300 Statistics
N300 Finance
Department: Faculties > Business and Law > Newcastle Business School > Business and Management
Depositing User: Paul Burns
Date Deposited: 08 Oct 2018 10:34
Last Modified: 11 Oct 2019 14:51

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