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Forecaster Diversity and the Benefits of Combining Forecasts

Author

Listed:
  • Roy Batchelor

    (Department of Banking and Finance, City University Business School, Frobisher Crescent, Barbican, London EC2Y 8HB, UK)

  • Pami Dua

    (Department of Economics, University of Connecticut, Scofieldtown Road, Stamford, Connecticut 06903)

Abstract

The expected error variance of a combined forecast is necessarily lower than that of an individual forecast, but in practice there may be considerable variation around these expected values. This paper introduces a measure of the benefit from combining, the probability of a reduction in error variance, which recognizes this problem. The measure is applied to data on the forecasts and forecasting methods of a panel of U.S. economists to determine how the benefits of combining vary with the number of forecasts combined, and with the diversity in theories and techniques among the component forecasts.

Suggested Citation

  • Roy Batchelor & Pami Dua, 1995. "Forecaster Diversity and the Benefits of Combining Forecasts," Management Science, INFORMS, vol. 41(1), pages 68-75, January.
  • Handle: RePEc:inm:ormnsc:v:41:y:1995:i:1:p:68-75
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    File URL: http://dx.doi.org/10.1287/mnsc.41.1.68
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    Keywords

    forecasting; combined forecasts;

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