comb_BG: Bates/Granger (1969) Forecast Combination Approach In GeomComb: (Geometric) Forecast Combination Methods

Description

Computes forecast combination weights according to the approach by Bates and Granger (1969) and produces forecasts for the test set, if provided.

Usage

 1 comb_BG(x) 

Arguments

 x An object of class foreccomb. Contains training set (actual values + matrix of model forecasts) and optionally a test set.

Details

In their seminal paper, Bates and Granger (1969) introduce the idea of combining forecasts. Their approach builds on portfolio diversification theory and uses the diagonal elements of the estimated mean squared prediction error matrix in order to compute combination weights:

w_i = \hat{σ}^{-2} (i) / Σ_{j=1}^N \hat{σ}^{-2} (j)

where \hat{σ}^{-2} (i) is the estimated mean squared prediction error of the i-th model.

The combined forecast is then obtained by:

\hat{y}_t = (f_t)'w

Their approach ignores correlation between forecast models due to difficulties in precisely estimating the covariance matrix.

Value

Returns an object of class foreccomb_res with the following components:

 Method Returns the used forecast combination method. Models Returns the individual input models that were used for the forecast combinations. Weights Returns the combination weights obtained by applying the combination method to the training set. Fitted Returns the fitted values of the combination method for the training set. Accuracy_Train Returns range of summary measures of the forecast accuracy for the training set. Forecasts_Test Returns forecasts produced by the combination method for the test set. Only returned if input included a forecast matrix for the test set. Accuracy_Test Returns range of summary measures of the forecast accuracy for the test set. Only returned if input included a forecast matrix and a vector of actual values for the test set. Input_Data Returns the data forwarded to the method.

Author(s)

Christoph E. Weiss and Gernot R. Roetzer

References

Bates, J. M., and Granger, C. W. (1969). The Combination of Forecasts. Journal of the Operational Research Society, 20(4), 451–468.

Timmermann, A. (2006). Forecast Combinations. In: Elliott, G., Granger, C. W. J., and Timmermann, A. (Eds.), Handbook of Economic Forecasting, 1, 135–196.

foreccomb, plot.foreccomb_res, summary.foreccomb_res, accuracy
 1 2 3 4 5 6 7 8 9 obs <- rnorm(100) preds <- matrix(rnorm(1000, 1), 100, 10) train_o<-obs[1:80] train_p<-preds[1:80,] test_o<-obs[81:100] test_p<-preds[81:100,] data<-foreccomb(train_o, train_p, test_o, test_p) comb_BG(data)