Forecasting Methods in Finance

Posted: 8 Nov 2018

See all articles by Allan Timmermann

Allan Timmermann

University of California, San Diego (UCSD) - Rady School of Management

Date Written: November 2018


Our review highlights some of the key challenges in financial forecasting problems and opportunities arising from the unique features of financial data. We analyze the difficulty of establishing predictability in an environment with a low signal-to-noise ratio, persistent predictors, and instability in predictive relations arising from competitive pressures and investors’ learning. We discuss approaches for forecasting the mean, variance, and probability distribution of asset returns. Finally, we discuss how to evaluate financial forecasts while accounting for the possibility that numerous forecasting models may have been considered, leading to concerns of data mining.

Suggested Citation

Timmermann, Allan, Forecasting Methods in Finance (November 2018). Annual Review of Financial Economics, Vol. 10, pp. 449-479, 2018, Available at SSRN: or

Allan Timmermann (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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