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Smoothing Techniques

Smoothing Techniques

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Several techniques are available to forecast time-series data that are stationary or that include no significant trend, cyclical, or seasonal effects. These techniques are often referred to as smoothing techniques because they produce forecasts based on “smoothing out” the irregular fluctuation effects in the time-series data.
Several techniques are available to forecast time-series data that are stationary or that include no significant trend, cyclical, or seasonal effects. These techniques are often referred to as smoothing techniques because they produce forecasts based on “smoothing out” the irregular fluctuation effects in the time-series data.

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Published by: ClassOf1.com on Jun 19, 2013
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Statistics
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Sub: Statistics Topic: Forecasting
*
Smoothing Techniques
Several techniques are available to forecast time-series data that are stationary or that include nosignificant trend, cyclical, or seasonal effects. These techniques are often referred to as
smoothingtechniques
because they
produce forecasts based on “
smoothing out
” the irregular fluctuation
effects in the time-series data. Three general categories of smoothing techniques are presented here:
Naive forecasting models
are simple models in which it is assumed that the more recent timeperiods of data represent the best predictions or forecasts for future outcomes. Naive modelsdo not take into account data trend, cyclical effects, or seasonality. For this reason, naivemodels seem to work better with data that are reported on a daily or weekly basis or insituations that show no trend or seasonality. The simplest of the naive forecasting methods isthe model in which the forecast for a given time period is the value for the previous timeperiod.
F
t
= x
t-1
 
Where,
F
t
 
= the forecast value for time period t
X
t-1
 
= the value for time period t
 –
1Many naive model forecasts are based on the value of one time period. Often such forecastsbecome a function of irregular fluctuations of the data; as a result, the forecasts are
“oversteered.”
Using averaging models, a forecaster enters information from several timeperiods
into the forecast and “smoothes” the data.
Averaging models
are computed byaveraging data from several time periods and using the average as the forecast for the next
 
 
Sub: Statistics Topic: Forecasting
*
time period.
 
A
moving average
is an average that is updated or recomputed for every newtime period being considered. The most recent information is utilized in each new movingaverage. This advantage is offset by the disadvantages that (1) it is difficult to choose theoptimal length of time for which to compute the moving average, and (2) moving averages donot usually adjust for such time-series effects as trend, cycles, or seasonality. To determine themore optimal lengths for which to compute the moving averages, we would need to forecastwith several different average lengths and compare the errors produced by them. A forecastermay want to place more weight on certain periods of time than on others.
For example
, a
forecaster might believe that the previous month’s value is three times as important
inforecasting as other months. A moving average in which some time periods are weighteddifferently than others is called a
weighted moving
AVERAGE
.Another forecasting technique,
exponential smoothing
, is used to weight data from previoustime periods with exponentially decreasing importance in the forecast. Exponential smoothingis accomplished by multiplying the actual value for the present time period, X
t
, by a valuebetween 0 and 1 (the exponential smoothing constant) referred to as a (not the same a usedfor a Type I error) and adding that result to the product of the present time
period’s forecast,
F
t
and (1 - a).

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