Page 135 number 12

General American Investors Co., a closed-end regulated investment management

company, invest primarily in medium-and high-quality stocks. Jim Campbell is studying the
asset value per share for this company and would like to forecast this variable for the
remaining quarters of 1996. The data are presented in Table P-12.

Evaluate the ability to forecast the asset value per share variable using the following
forecasting methods: naïve, moving averages and exponential smoothing. When you
compare this tecsniques, take into consideration that the actual asset value per share for
the second quarter of 1996 was 26.47. write a report for Jim indicating which method he
should use and why.

Answer:

Plot

Time Series Plot of yt

32.5

30.0

27.5

25.0
yt

22.5

20.0

17.5

15.0
4 8 12 16 20 24 28 32 36 40 44
Index
1. With NAÏVE Method
t naive1
naive2 naive3
yt (stationary e1 e2 e3
(trend) (seasonal)
)
16.98 - - - - - -
1
18.47 16.98 - - 1.49 - -
2
17.63 18.47 19.96 20.09075 -0.84 -2.33 -2.46075
3
20.65 17.63 16.79 16.8282 3.02 3.86 3.821798
4
21.95 20.65 23.67 24.18732 1.3 -1.72 -2.23732
5
23.85 21.95 23.25 23.33184 1.9 0.6 0.51816
6
20.44 23.85 25.75 25.91446 -3.41 -5.31 -5.47446
7
19.29 20.44 17.03 17.51755 -1.15 2.26 1.772449
8
22.75 19.29 18.14 18.2047 3.46 4.61 4.545298
9
23.94 22.75 26.21 26.83061 1.19 -2.27 -2.89061
10
24.84 23.94 25.13 25.19225 0.9 -0.29 -0.35225
11
16.7 24.84 25.74 25.77383 -8.14 -9.04 -9.07383
12
18.04 16.7 8.56 11.22746 1.34 9.48 6.812544
13
19.19 18.04 19.38 19.48752 1.15 -0.19 -0.29752
14
18.97 19.19 20.34 20.41331 -0.22 -1.37 -1.44331
15
17.03 18.97 18.75 18.75252 -1.94 -1.72 -1.72252
16
18.23 17.03 15.09 15.2884 1.2 3.14 2.941603
17
19.8 18.23 19.43 19.51456 1.57 0.37 0.285443
18
22.89 19.8 21.37 21.50521 3.09 1.52 1.384789
19
21.41 22.89 25.98 26.46223 -1.48 -4.57 -5.05223
20
21.5 21.41 19.93 20.02569 0.09 1.57 1.474308
21
25.05 21.5 21.59 21.59038 3.55 3.46 3.459622
22
20.33 25.05 28.6 29.18616 -4.72 -8.27 -8.85616
23
20.6 20.33 15.61 16.49936 0.27 4.99 4.100643
24
25.33 20.6 20.87 20.87359 4.73 4.46 4.456414
25
26.06 25.33 30.06 31.14606 0.73 -4 -5.08606
26
28.89 26.06 26.79 26.81104 2.83 2.1 2.078962
27
 30.6 28.89 31.72 32.02733 1.71 -1.12 -1.42733
28
27.44 30.6 32.31 32.41121 -3.16 -4.87 -4.97121
29
26.69 27.44 24.28 24.60633 -0.75 2.41 2.083673
30
28.71 26.69 25.94 25.9605 2.02 2.77 2.749501
31
28.56 28.71 30.73 30.88288 -0.15 -2.17 -2.32288
32
25.87 28.56 28.41 28.41078 -2.69 -2.54 -2.54078
33
24.96 25.87 23.18 23.43336 -0.91 1.78 1.526635
34
27.61 24.96 24.05 24.08201 2.65 3.56 3.52799
35
24.75 27.61 30.26 30.54135 -2.86 -5.51 -5.79135
36
23.32 24.75 21.89 22.18625 -1.43 1.43 1.133745
37
22.61 23.32 21.89 21.97262 -0.71 0.72 0.637378
38
24.08 22.61 21.9 21.92162 1.47 2.18 2.158383
39
22.31 24.08 25.55 25.64557 -1.77 -3.24 -3.33557
40
22.67 22.31 20.54 20.6701 0.36 2.13 1.999896
41
23.52 22.67 23.03 23.03581 0.85 0.49 0.484191
42
25.41 23.52 24.37 24.40187 1.89 1.04 1.00813
43
23.94 25.41 27.3 27.45188 -1.47 -3.36 -3.51188
44
25.68 23.94 22.47 22.55504 1.74 3.21 3.124959
45
forecas 26.47 25.68 27.42 27.54647 0.79 -0.95 -1.07647
t

Best Naive
 Autocorrelation Function for naive1
(with 5% significance limits for the autocorrelations)

1.0
0.8
0.6
0.4
Autocorrelation

0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0

1 2 3 4 5 6 7 8 9 10 11
Lag

Autocorrelation Function for n2

(with 5% significance limits for the autocorrelations)

1.0
0.8
0.6
0.4
Autocorrelation

0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0

1 2 3 4 5 6 7 8 9 10 11
Lag
 Autocorrelation Function for n3
(with 5% significance limits for the autocorrelations)

1.0
0.8
0.6
0.4
Autocorrelation

0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0

1 2 3 4 5 6 7 8 9 10 11
Lag

 But from the ACF plot we see that the seasonal naïve give the good forecast, all of the first
six tome lags into the confidence interval.
 2. With Moving averages method we use 4 quarter in length

Moving Average Plot for yt

32.5 Variable
Actual
Fits
30.0
Forecasts
95.0% PI
27.5 Moving Average
Length 4

25.0 Accuracy Measures

MAPE 9.31334
yt

MAD 2.12848
22.5 MSD 6.92939

20.0

17.5

15.0
1 5 10 15 20 25 30 35 40 45
Index

Moving Average for yt

Data yt
Length 45
NMissing 0

Moving Average

Length 4

Accuracy Measures

MAPE 9.31334
MAD 2.12848
MSD 6.92939

Moving Average Plot for yt

MTB > MA 'yt' 4;

SUBC> Forecasts 1.

Moving Average for yt

Data yt
Length 45
NMissing 0

Moving Average
Length 4

Accuracy Measures

MAPE 9.31334
MAD 2.12848
MSD 6.92939

Forecasts

Period Forecast Lower Upper

46 24.6375 19.4781 29.7969

3. With single exponential smoothing

Smoothing Plot for yt

Single Exponential Method
32.5 Variable
Actual
30.0 Fits
Forecasts
95.0% PI
27.5
Smoothing Constant
Alpha 0.696098
25.0
Accuracy Measures
yt

MAPE 8.42548
22.5 MAD 1.89435
MSD 5.46249

20.0

17.5

15.0
1 5 10 15 20 25 30 35 40 45
Index

Single Exponential Smoothing for yt

Data yt
Length 45

Smoothing Constant

Alpha 0.696098

Accuracy Measures

MAPE 8.42548
MAD 1.89435
MSD 5.46249
Forecasts

Period Forecast Lower Upper

46 25.2269 20.5858 29.8679

4. With Double Exponential Smoothing

Smoothing Plot for yt

Double Exponential Method
32.5 Variable
Actual
30.0 Fits
Forecasts
95.0% PI
27.5
Smoothing Constants
Alpha (lev el) 0.951666
25.0 Gamma (trend) 0.037978
yt

Accuracy Measures
22.5 MAPE 8.50550
MAD 1.87142
MSD 5.94963
20.0

17.5

15.0
1 5 10 15 20 25 30 35 40 45
Index

Double Exponential Smoothing for yt

Data yt
Length 45

Smoothing Constants

Alpha (level) 0.951666

Gamma (trend) 0.037978

Accuracy Measures

MAPE 8.50550
MAD 1.87142
MSD 5.94963

Forecasts

Period Forecast Lower Upper

46 25.8330 21.2481 30.4178
5. With Winter’s Method (multiplikatif)

Winters' Method Plot for yt

Multiplicative Method
32.5 Variable
Actual
30.0 Fits
Forecasts
95.0% PI
27.5
Smoothing Constants
Alpha (lev el) 0.2
25.0 Gamma (trend) 0.2
Delta (seasonal) 0.2
yt

22.5 Accuracy Measures

MAPE 11.6253
MAD 2.5842
20.0 MSD 10.2970

17.5

15.0
1 5 10 15 20 25 30 35 40 45
Index

Winters' Method for yt

Multiplicative Method

Data yt
Length 45

Smoothing Constants

Alpha (level) 0.2

Gamma (trend) 0.2
Delta (seasonal) 0.2

Accuracy Measures

MAPE 11.6253
MAD 2.5842
MSD 10.2970

Forecasts

Period Forecast Lower Upper

46 23.5163 17.1851 29.8474
 MSD MAPE MAD Forecast
Moving average 6.92939 9.31334 2.12848 24.6375

Single Exponential 5.46249 8.42548 1.89435 25.2269

Hol’t Method 5.94963 8.50550 1.87142 25.8330

Winter’s Method 10.2970 11.6253 2.5842 23.5163

Conclusion : according to the result of error and value of forecast we can

see that the best method is Double exponential smoothing with forecast
25.83.
Error = 26.47 – 25.83 = 0.64