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- Is There An Optimal Forecast Combination?
- Cheng Hsiao, Shui Ki Wan
- Journal of Econometrics 178 (2014) 294–309
- #002289 20160221 () Views:3
- Weconsider several geometric approaches for combining forecasts in large samples—a simple eigenvector
approach, a mean corrected eigenvector and trimmed eigenvector approach. We give conditions where
geometric approach yields identical result as the regression approach. We also consider a mean and scale
corrected simple average of all predictive models for finite sample and give conditions where simple average
is an optimal combination. Monte Carlos are conducted to compare the finite sample performance of
these and some popular forecast combination and information combination methods and to shed light on
the issues of ‘‘forecast combination’’ vs ‘‘information combination’’. We also try to shed light on whether
there exists an optimal forecast combination method by comparing various forecast combination methods
to predict US real output growth rate and excess equity premium.
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