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A Data-Weighted Prior Estimator for Forecast Combination

REGIOlab and Department of Applied Economics, University of Oviedo, Faculty of Economics and Business, Avda. del Cristo, s/n, 33006 Oviedo, Spain
Regional Economics Applications Laboratory, University of Illinois at Urbana-Champaign 607 S. Matthew, Urbana, IL 61801-367, USA
Author to whom correspondence should be addressed.
Entropy 2019, 21(4), 429;
Received: 7 February 2019 / Revised: 11 April 2019 / Accepted: 18 April 2019 / Published: 23 April 2019
(This article belongs to the Special Issue Entropy Application for Forecasting)
PDF [283 KB, uploaded 23 April 2019]


Forecast combination methods reduce the information in a vector of forecasts to a single combined forecast by using a set of combination weights. Although there are several methods, a typical strategy is the use of the simple arithmetic mean to obtain the combined forecast. A priori, the use of this mean could be justified when all the forecasters have had the same performance in the past or when they do not have enough information. In this paper, we explore the possibility of using entropy econometrics as a procedure for combining forecasts that allows to discriminate between bad and good forecasters, even in the situation of little information. With this purpose, the data-weighted prior (DWP) estimator proposed by Golan (2001) is used for forecaster selection and simultaneous parameter estimation in linear statistical models. In particular, we examine the ability of the DWP estimator to effectively select relevant forecasts among all forecasts. We test the accuracy of the proposed model with a simulation exercise and compare its ex ante forecasting performance with other methods used to combine forecasts. The obtained results suggest that the proposed method dominates other combining methods, such as equal-weight averages or ordinal least squares methods, among others. View Full-Text
Keywords: data-weighted prior; generalized maximum entropy method; combined forecast data-weighted prior; generalized maximum entropy method; combined forecast
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Fernández-Vázquez, E.; Moreno, B.; Hewings, G.J. A Data-Weighted Prior Estimator for Forecast Combination. Entropy 2019, 21, 429.

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