On-Line Learning and Forecast Combination in Unbalanced Panels

Econometric Reviews, Forthcoming

53 Pages Posted: 29 Jan 2015

See all articles by Kajal Lahiri

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics

Huaming Peng

State University of New York (SUNY) at Albany - Department of Economics

Yongchen Zhao

Towson University - Department of Economics

Date Written: September 2, 2014

Abstract

This paper evaluates the performance of a few newly proposed on-line forecast combination algorithms, and compares them with some of the existing ones including the simple average and that of Bates and Granger (1969). We derive asymptotic results for the new algorithms that justify certain established approaches to forecast combination including trimming, clustering, weighting and shrinkage. We also show that when implemented on unbalanced panels, different combination algorithms implicitly impute missing data differently, so that the performance of the resulting combined forecasts are not comparable. After explicitly imputing the missing observations in the U.S. Survey of Professional Forecasters (SPF) over 1968 IV-2013 I, we find that the equally weighted average continues to be hard to beat, but the new algorithms can potentially deliver superior performance at shorter horizons, especially during periods of volatility clustering and structural breaks.

Keywords: On-line learning, Recursive algorithms, Unbalanced panel, SPF forecasts

JEL Classification: C22; C53; C14

Suggested Citation

Lahiri, Kajal and Peng, Huaming and Zhao, Yongchen, On-Line Learning and Forecast Combination in Unbalanced Panels (September 2, 2014). Econometric Reviews, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2556586

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics ( email )

Department of Economics
1400 Washington Avenue
Albany, NY 12222
United States
518-442 4758 (Phone)
518-442 4736 (Fax)

HOME PAGE: http://www.albany.edu/~klahiri

Huaming Peng

State University of New York (SUNY) at Albany - Department of Economics ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States

Yongchen Zhao (Contact Author)

Towson University - Department of Economics ( email )

Towson, MD 21204
United States

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