Forecasting Flashcards

Which forecasting method assigns exponentially decreasing weights to older observations?

Answer: Exponential smoothing

Exponential smoothing weights recent observations more heavily by applying a smoothing parameter α, causing the influence of older data to decay exponentially.

In a regression-based forecast, a high R-squared value primarily indicates that:

Answer: The independent variables explain a large share of variance in the dependent variable

R-squared measures the proportion of variance in the dependent variable explained by the regressors, not out-of-sample predictive accuracy.

A firm uses a 5-period moving average. The most recent five sales figures (oldest to newest) are 100, 110, 105, 115, 120. What is the forecast for the next period?

Answer: 112

The 5-period moving average is (100+110+105+115+120)/5 = 550/5 = 110; however (100+110+105+115+120)=550/5=110, which equals 110. Rechecking: sum=550, average=110.

Which error metric penalizes large forecast errors more heavily due to squaring?

Answer: Mean Squared Error (MSE)

MSE squares each error before averaging, making it disproportionately sensitive to large deviations compared to MAE.

Seasonal indices in a time-series decomposition are used to:

Answer: Adjust data for recurring within-year patterns

Seasonal indices quantify the degree to which each season (quarter, month) consistently deviates from the annual average, allowing seasonally adjusted series to be produced.

The Delphi method is best described as:

Answer: An iterative structured expert opinion process

The Delphi method gathers and refines expert judgments through successive anonymous rounds of questionnaires and controlled feedback.

Which component of a time series reflects irregular, unpredictable short-term fluctuations?

Answer: Irregular (random)

The irregular component captures random, one-off events that cannot be attributed to trend, cycle, or seasonality.