Old dog, new tricks: a modelling view of simple moving averages

2017/09/29 by Ivan Svetunkov, Fotios Petropoulos · 5 citations
Decision Sciences · Mathematics · #Forecasting Techniques and Applications #Stock Market Forecasting Methods #Advanced Statistical Methods and Models

paper · doi:10.1080/00207543.2017.1380326

Abstract

Simple moving average (SMA) is a well-known forecasting method. It is easy to understand and interpret and easy to use, but it does not have an appropriate length selection mechanism and does not have an underlying statistical model. In this paper, we show two statistical models underlying SMA and demonstrate that the automatic selection of the optimal length of the model can easily be done using this finding. We then evaluate the proposed model on a real data-set and compare its performance with other popular simple forecasting methods. We find that SMA performs better both in terms of point forecasts and prediction intervals in cases of normal and cumulative values.

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