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Ridiculously Simple Time Series Forecasting We will review the following techniques: Simple extrapolation (the naïve model). Moving average model Weighted moving average model

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The Naïve Model If your time series exhibits little variation from one period to the next, has no discernible trend, and is unaffected by seasonality, the naïve model is just what you need.

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The Moving Average Model For example, if n = 4, you have a 4-period moving average model.

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The Weighted Moving Average Model The ωs are the weights attached to past observations of the time series variable and there are n periods weighted. Notice that: Σω i = 1. The trick is to select the value of n and corresponding values of so as to minimize MSE

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Example: Forecasting Retail Sales of Womens Clothing Our data set contains 175 monthly observations on retail sales of womens clothing in the U.S. (January 1996 to August 2010) measuring in millions of dollars. We will perform in-sample forecasts using the 3 techniques to determine which has the best fit.

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Techniques 2 and 3 We will do a 6-month prior moving average for technique 2 We will do a 4-month weighted moving average for technique 3. The weights are as follows:

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Results

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