Least-squares forecast averaging
This paper proposes forecast combination based on the method of Mallows Model AveragingÂ (MMA). The method selects forecast weights by minimizing a Mallows criterion. This criterion is an asymptotically unbiased estimate of both the in-sample mean-squared error (MSE) and the out-of-sample one-step-ahead mean-squared forecast error (MSFE). Furthermore, the MMA weights are asymptotically mean-square optimal in the absence of time-series dependence. We show how to compute MMA weights in forecasting settings, and investigate the performance of the method in simple but illustrative simulation environments. We find that theÂ MMA forecasts have low MSFE and have much lower maximum regret than other feasible forecasting methods, including equal weighting, BIC selection, weighted BIC, AIC selection, weighted AIC, Bates-Granger combination, predictive least squares, and Granger-Ramanathan combination.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carmen Fernandez & Eduardo Ley & Mark F.J. Steel, 1998.
"Benchmark Priors for Bayesian Model Averaging,"
9804001, EconWPA, revised 31 Jul 1999.
- Carmen Fernandez & Eduardo Ley & Mark F J Steel, 1998. "Benchmark priors for Bayesian model averaging," ESE Discussion Papers 26, Edinburgh School of Economics, University of Edinburgh.
- Carmen Fernandez & Eduardo Ley & Mark F J Steel, 1998. "Benchmark priors for Bayesian model averaging," ESE Discussion Papers 66, Edinburgh School of Economics, University of Edinburgh.
- Wright, Jonathan H., 2008.
"Bayesian Model Averaging and exchange rate forecasts,"
Journal of Econometrics,
Elsevier, vol. 146(2), pages 329-341, October.
- Jonathan H. Wright, 2003. "Bayesian Model Averaging and exchange rate forecasts," International Finance Discussion Papers 779, Board of Governors of the Federal Reserve System (U.S.).
- Min, Chung-ki & Zellner, Arnold, 1993.
"Bayesian and non-Bayesian methods for combining models and forecasts with applications to forecasting international growth rates,"
Journal of Econometrics,
Elsevier, vol. 56(1-2), pages 89-118, March.
- Min, C.K. & Zellner, A., 1992. ""Bayesian and Non-Bayesian Methods for Combining Models and Forecasts with Applications to Forecasting International Growth Rates"," Papers 90-92-23, California Irvine - School of Social Sciences.
- Ching-Kang Ing, 2005. "Accumulated Prediction Errors, Information Criteria And Optimal Forecasting For Autoregressive Time Series," Econometrics 0503020, EconWPA.
- Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004.
"Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach,"
American Economic Review,
American Economic Association, vol. 94(4), pages 813-835, September.
- Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (Bace) Approach," OECD Economics Department Working Papers 266, OECD Publishing.
- Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," NBER Working Papers 7750, National Bureau of Economic Research, Inc.
- Avramov, Doron, 2002. "Stock return predictability and model uncertainty," Journal of Financial Economics, Elsevier, vol. 64(3), pages 423-458, June.
- Marco Aiolfi & Carlos Capistrán & Allan Timmermann, 2010.
2010-04, Banco de México.
- Carmen Fernandez & Eduardo Ley & Mark Steel, 1999.
"Model uncertainty in cross-country growth regressions,"
9903003, EconWPA, revised 06 Oct 2001.
- Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
- Carmen Fernandez & Eduardo Ley & Mark Steel, 2001. "Model uncertainty in cross-country growth regressions," Econometrics 0110002, EconWPA.
- Ing, Ching-Kang, 2003. "Multistep Prediction In Autoregressive Processes," Econometric Theory, Cambridge University Press, vol. 19(02), pages 254-279, April.
- Stock, James H. & Watson, Mark W., 2006. "Forecasting with Many Predictors," Handbook of Economic Forecasting, Elsevier.
- Francis X. Diebold & Jose A. Lopez, 1995.
"Forecast evaluation and combination,"
9525, Federal Reserve Bank of New York.
- Mark W. Watson & James H. Stock, 2004. "Combination forecasts of output growth in a seven-country data set," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(6), pages 405-430.
- Ing, Ching-Kang & Wei, Ching-Zong, 2003. "On same-realization prediction in an infinite-order autoregressive process," Journal of Multivariate Analysis, Elsevier, vol. 85(1), pages 130-155, April.
- Bruce E. Hansen, 2007. "Least Squares Model Averaging," Econometrica, Econometric Society, vol. 75(4), pages 1175-1189, 07.
- R. Bhansali, 1996. "Asymptotically efficient autoregressive model selection for multistep prediction," Annals of the Institute of Statistical Mathematics, Springer, vol. 48(3), pages 577-602, September.
- Hjort N.L. & Claeskens G., 2003. "Frequentist Model Average Estimators," Journal of the American Statistical Association, American Statistical Association, vol. 98, pages 879-899, January.
- Jonathan H. Wright, 2009.
"Forecasting US inflation by Bayesian model averaging,"
Journal of Forecasting,
John Wiley & Sons, Ltd., vol. 28(2), pages 131-144.
- Jonathan H. Wright, 2003. "Forecasting U.S. inflation by Bayesian Model Averaging," International Finance Discussion Papers 780, Board of Governors of the Federal Reserve System (U.S.).
- Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:146:y:2008:i:2:p:342-350. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.