Forecasting Efficiency: Concepts and Applications

No 774, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: The question of forecasting accuracy is, of course, one that has been the subject of numerous investigations over the last two decades. The present study contributes to this line of research in two ways. First, we introduce a new concept, called "forecast efficiency," that measures the extent to which information is incorporated into forecasts. This concept is closely related to concepts of efficiency used in the analysis of stock and other financial markets. The paper proves two readily testable propositions about efficient forecasts. Second, the empirical part of the study examines forecast efficiency by looking at forecast revisions ("fixed-horizon forecasts"), rather than a series of forecasts of different events ("rolling-horizon forecasts") as is the case for most studies of forecasting. This new approach to estimation in certain circumstances will provide a more powerful test of forecast efficiency. A number of fixed-horizon forecasts are collected and these are tested for forecast efficiency.

Keywords: Forecasting accuracy; forecast efficiency; efficient forecasts (search for similar items in EconPapers)
Pages: 26 pages
Date: 1985-09
Note: CFP 692.
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Citations: View citations in EconPapers (2)

Published in Review of Economics and Statistics (November 1987), 69(4): 667-674

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