# Forecasting Principles from Experience with Forecasting Competitions

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## Abstract

**:**

## 1. Introduction

- (I)
- dampen trends/growth rates;
- (II)
- average across forecasts from ‘non-poisonous’ methods;
- (III)
- include forecasts from robust devices in that average;
- (IV)
- select variables in forecasting models at a loose significance;
- (V)
- update estimates as data arrive, especially after forecast failure;
- (VI)
- ‘shrink’ estimates of autoregressive parameters in small samples;
- (VII)
- adapt choice of predictors to data frequency;
- (VIII)
- address ‘special features’ like seasonality.

## 2. M4 Competition

#### 2.1. Overview

#### 2.2. M4 Benchmark Forecasting Methods

SES | Simple exponential smoothing | $\delta ={b}_{0}=0$, |

HES | Holt’s exponential smoothing, | |

Theta2 | Theta(2) method | $\delta =0,{b}_{0}=\widehat{\tau}/2$ defined in (1). |

#### 2.3. Seasonality in the M4 Benchmark Methods

#### 2.4. M4 Forecast Evaluation

## 3. M4 Data

#### 3.1. Properties of Interest

#### 3.2. Sample Size

#### 3.3. Logarithms

#### 3.4. Persistence

#### 3.5. Seasonality

## 4. Revisiting the M4 Benchmark Methods

#### 4.1. Expected Performance of Naive Forecasts

#### 4.2. A Simplified Theta Method: THIMA and THIMA.log

- (1)
- Starting from ${y}_{t},\phantom{\rule{4pt}{0ex}}t=1,\dots ,T$, the first differences $\mathsf{\Delta}{y}_{t},\phantom{\rule{4pt}{0ex}}t=2,\dots ,T$ have mean $\tilde{\tau}$. Construct ${x}_{t}=\mathsf{\Delta}{y}_{t}-{\scriptstyle \frac{1}{2}}\tilde{\tau}$.
- (2)
- Estimate the following MA(1) model by nonlinear least squares (NLS) with $\widehat{\theta}\in [-0.95,0.95]$:$${x}_{t}={\u03f5}_{t}+\theta {\u03f5}_{t-1}.$$
- (3)
- The forecasts are:$${\widehat{y}}_{T+H}={y}_{T}+{\scriptstyle \frac{1}{2}}\tilde{\tau}H+\widehat{\theta}{\widehat{\u03f5}}_{T}.$$

- if (7) using ${c}_{l}=1.3$ suggests logarithms, take logs;
- forecast using THIMA;
- exponentiate the forecasts if logs were used, then add seasonality if the variable was deseasonalized.

## 5. Heterogeneity and Independence

#### 5.1. Unexpected Heterogeneity

#### 5.2. An M4-Like Data Generation Process

#### 5.3. The Role of Sample Dates

## 6. The Cardt Method

#### 6.1. The Original Card Method

- Let ${y}_{t},t=1,\dots ,T$ denote the initial series. If $min({y}_{1},\dots ,{y}_{T})>1$: ${x}_{t}=log\left({y}_{t}\right)$, else ${x}_{t}={y}_{t}$.This entails that logs were always used in both the M3 and M4 data.
- If $\mathrm{var}\left[\mathsf{\Delta}{x}_{t}\right]\le 1.2\phantom{\rule{4pt}{0ex}}\mathrm{var}\left[{x}_{t}\right]$ then forecast from a dynamic model, else directly forecast the levels using a static model.The static model only occurs in M4 at a rate of $1.5\%$ (yearly), $4\%$ (quarterly), $6\%$ (monthly), and almost never at the other data frequencies.
- The presence of seasonality is tested at $10\%$ based on the ANOVA test (8) using $\mathsf{\Delta}{x}_{t}$ or ${x}_{t}$ (depending on the previous step).

#### 6.2. Robust Adjustments to Card

#### 6.2.1. Robust 1-Step Forecasts of AR(1) Model

#### 6.2.2. One-Step Ahead Robust Adjustment for Rho

#### 6.2.3. One and Two-Step Robust Adjustment after Calibration

#### 6.3. Cardt: More Averaging by Adding THIMA

#### 6.4. Forecast Intervals

## 7. Evaluation

#### 7.1. Averaging and Calibration

#### 7.2. Comparison of Cardt and Card

#### 7.3. Interval Forecasts

#### 7.4. Overall Performance

## 8. Cardt and COVID-19

## 9. Conclusions

- (I)
- dampen trends/growth rates;This certainly holds for our methods and Theta-like methods. Both Delta and Rho explicitly squash the growth rates. Theta(2) halves the trend. The THIMA method that we introduced halves the mean of the differences, which has the same effect.
- (II)
- average across forecasts from "non-poisonous" methods;This principle, which goes back to [16], is strongly supported by our results, as well as the successful methods in M4. There may be some scope for clever weighting schemes for the combination, as used in some M4 submissions that did well. It may be that a judicious few would be better than using very many.A small amount of averaging also helped with forecast intervals, although the intervals from annual data in levels turned out to be ‘poisonous.’
- (III)
- include forecasts from robust devices in that average;We showed that short-horizon forecasts of Rho could be improved by overdifferencing when using levels. The differenced method already has some robustness, because it reintegrates from the last observation. This, in turn, could be an adjustment that is somewhat too large. The IMA model of the THIMA method effectively estimates an intercept correction, so has this robustness property (as does Theta(2), which estimates it by exponential smoothing).
- (IV)
- select variables in forecasting models at a loose significance;Some experimentation showed that the seasonality decisions work best at $10\%$, in line with this principle. Subsequent pruning of seasonal dummies in the calibration model does not seem to do much, probably because we already conditioned on the presence of seasonality. However, for forecast uncertainty, a stricter selection helps to avoid underestimating the residual variance. Ref. [17] find support for this in a theoretical analysis.
- (V)
- update estimates as data arrive, especially after forecast failure;This aspect was only covered here by restricting estimation samples to say, 40 years for annual data given the many large shifts that occurred in earlier data. Recursive and moving windows forecasts are quite widely used in practical forecasting.
- (VI)
- ‘shrink’ estimates of autoregressive parameters in small samples;As the forecast error variance can only be estimated from out-of-sample extrapolation, it is essential to avoid explosive behaviour, so constrain all $\widehat{\rho}\le 1$.
- (VII)
- adapt choice of predictors to data frequency;For example, method 118 by [50] had the best performance for yearly and monthly forecasting but Card was best at forecasting the hourly data.
- (VIII)
- address ‘special features’ like seasonality.Appropriate handling of seasonality was important as described in Section 2.3 and even transpired to be an important feature of forecasting COVID-19 cases and deaths as in [49].

## Author Contributions

## Funding

## Institutional Review Board Statement

## Informed Consent Statement

## Data Availability Statement

## Acknowledgments

## Conflicts of Interest

## Appendix A. Accuracy Measures under Naive Forecasts

#### Appendix A.1. Stationary Case

**Table A1.**Simulated and approximated mean and bias of MASE and sMAPE for one-step ahead naive forecasts. DGP N[$\mu ,1$], T = 15, M = 100,000 replications.

$\mathsf{\mu}$ = 0.5 | $\mathsf{\mu}$ = 1 | $\mathsf{\mu}=2$ | $\mathsf{\mu}=5$ | $\mathsf{\mu}=10$ | |
---|---|---|---|---|---|

Simulated | |||||

E[MASE] | 1.136 | 1.136 | 1.136 | 1.136 | 1.136 |

E[sMAPE] | 133.9 | 109.1 | 63.2 | 23.0 | 11.3 |

Bias[MASE] | −0.006 | −0.006 | −0.006 | −0.006 | −0.006 |

Bias[sMAPE] | 1.100 | 0.923 | 0.573 | 0.198 | 0.093 |

Bias[MAPE] | −0.279 | −0.932 | −1.640 | −0.222 | −0.108 |

Bias[MAAPE] | 0.064 | 0.038 | −0.109 | −0.159 | −0.100 |

Approximated | |||||

E[MASE] | 1 | 1 | 1 | 1 | 1 |

E[sMAPE] | 225.7 | 112.8 | 56.4 | 22.6 | 11.3 |

Bias[MASE] | 0 | 0 | 0 | 0 | 0 |

Bias[sMAPE] | 2 | 1 | 0.5 | 0.2 | 0.1 |

#### Appendix A.2. Nonstationary Case

#### Appendix A.3. Nonstationary Case in Levels

**Table A2.**Simulated means and standard deviations of MASE, sMAPE, MAPE, and MAAPE for one-step ahead naive forecasts. $T=15$, $M=100,000$ replications.

${\mathit{y}}_{\mathit{t}}\sim $N[$\mathit{\mu},{\mathit{\sigma}}^{2}$] | $\mathbf{\Delta}{\mathit{y}}_{\mathit{t}}\sim $N[$\mathit{\mu},{\mathit{\sigma}}^{2}$] | $\mathbf{\Delta}log{\mathit{y}}_{\mathit{t}}\phantom{\rule{-0.166667em}{0ex}}\sim \phantom{\rule{-0.166667em}{0ex}}$N[$\mathit{\mu},{\mathit{\sigma}}^{2}$] | ||||
---|---|---|---|---|---|---|

Mean | Sdev | Mean | Sdev | Mean | Sdev | |

$\mathsf{\mu}=0,\sigma =1$, T = 15 | ||||||

MASE | 1.14 | 0.92 | 1.04 | 0.84 | 2.9 | 9.8 |

sMAPE | 144.1 | 68.5 | 51.0 | 58.9 | 69.9 | 45.4 |

MAPE | 6629.4 | $18\phantom{\rule{3.33333pt}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\times \phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{3.33333pt}{0ex}}{10}^{5}$ | 809.6 | $1.6\phantom{\rule{3.33333pt}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\times \phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{3.33333pt}{0ex}}{10}^{5}$ | 112.4 | 195.1 |

MAAPE | 90.8 | 40.1 | 40.3 | 38.8 | 58.7 | 37.9 |

$\mathsf{\mu}=0.025,\sigma =0.1$, T = 15 | ||||||

MASE | 1.14 | 0.92 | 1.05 | 0.85 | 1.4 | 1.2 |

sMAPE | 141.3 | 69.3 | 37.7 | 50.0 | 8.3 | 6.3 |

MAPE | 654.0 | 10871 | 365.7 | 15478 | 8.5 | 6.8 |

MAAPE | 89.5 | 40.6 | 31.7 | 34.8 | 8.4 | 6.7 |

$\mathsf{\mu}=0.1,\sigma =1$, T=15 | ||||||

MASE | 1.14 | 0.92 | 1.04 | 0.84 | 4.3 | 13.2 |

sMAPE | 143.8 | 68.6 | 48.5 | 57.6 | 70.1 | 45.5 |

MAPE | 797.4 | 23462 | 188.7 | 6304.6 | 124.6 | 219.1 |

MAAPE | 90.6 | 40.2 | 38.6 | 38.2 | 60.8 | 39.6 |

$\mathsf{\mu}=1,\sigma =1$, T = 15 | ||||||

MASE | 1.14 | 0.92 | 1.04 | 0.75 | 41.8 | 71.6 |

sMAPE | 109.1 | 71.0 | 8.60 | 7.02 | 94.0 | 51.6 |

MAPE | 648.1 | 27743 | 9.31 | 21.5 | 358.8 | 579.4 |

MAAPE | 75.3 | 43.5 | 9.07 | 7.52 | 91.9 | 46.8 |

$\mathsf{\mu}=10,\sigma =1$, T = 15 | ||||||

MASE | 1.14 | 0.92 | 1.00 | 0.104 | $5.1\phantom{\rule{3.33333pt}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\times \phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{3.33333pt}{0ex}}{10}^{5}$ | $6.6\phantom{\rule{3.33333pt}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\times \phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{3.33333pt}{0ex}}{10}^{5}$ |

sMAPE | 11.3 | 8.63 | 6.90 | 0.69 | 200.0 | 0.039 |

MAPE | 11.5 | 9.05 | 7.15 | 0.74 | $36\phantom{\rule{3.33333pt}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\times \phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{3.33333pt}{0ex}}{10}^{5}$ | $47\phantom{\rule{3.33333pt}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\times \phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{-0.166667em}{0ex}}\phantom{\rule{3.33333pt}{0ex}}{10}^{5}$ |

MAAPE | 11.3 | 8.71 | 7.14 | 0.74 | 157.1 | 0.010 |

## Appendix B. Forecast Intervals

- remove the broken intercept and trend (if present, so setting ${I}_{6}=0$);
- remove deterministic variables that are insignificant at $2\%$; the intercept is kept;
- remove ${z}_{t-R-1}$ if present;
- add the absolute residuals from (A5) as a regressor;
- estimate the reformulated calibration model;
- if $\widehat{\rho}>0.999$ then impose the unit root, and re-estimate;
- if $\widehat{\rho}<0$ then set $\rho =0$, and re-estimate.

## Appendix C. Comparison with R Code

Theta2 | Ox Implementation | R Implementation | ||||||
---|---|---|---|---|---|---|---|---|

Time (s) | sMAPE | Time (s) | sMAPE | |||||

Total | Data | Forecast | Total | |||||

Yearly | 3.67 | 0.876 | 4.61 | 375 | 380 | 0.880 | ||

Quarterly | 4.83 | 0.949 | 4.31 | 627 | 631 | 0.950 | ||

Monthly | 10.49 | 1.017 | 4.22 | 1499 | 1503 | 1.016 | ||

Weekly | 0.45 | 0.838 | 3.95 | 33 | 37 | 0.886 | ||

Daily | 6.96 | 1.007 | 4.05 | 1019 | 1023 | 1.008 | ||

Hourly | 0.27 | 0.991 | 3.89 | 28 | 32 | 0.991 |

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**Figure 1.**Distribution of sample size after truncation. Truncated at 40 years, except daily at 1500 observations.

**Figure 4.**Tests of seasonality for quarterly, monthly, weekly and daily (with $S=5$) M4. First row for ${y}_{t}$, second row for $\mathsf{\Delta}log{y}_{t}$, third row seasonal ANOVA test for $\mathsf{\Delta}log{y}_{t}$.

**Figure 5.**Average one-step ahead forecast accuracy for yearly M3 and M4, withholding from 12 to 1 observations at the end from the full datasets. Normalized by the naive results.

**Figure 6.**QQ plots of annual and quarterly residuals against Normal and closely matching Student-t distribution, t(4) for yearly and t(8) for quarterly data.

**Figure 8.**Average one-step ahead forecast accuracy for DGP and M4, withholding from 12 to 1 observations at the end from the full datasets.

**Figure 9.**H-step sMAPE relative to that of Naive2 for all non-seasonal data (simulated, M4, M3, daily M4), retaining from $2H$ to H observations for evaluation. Forecast methods are Delta, Rho, $(\mathit{Delta}+\mathit{Rho})/2$, Card.

**Figure 10.**H-step performance relative to that of Naive2 for all seasonal data (M4Q, M4M, M4W, M4H for quarterly, monthly, weekly, hourly), retaining from $2H$ to H observations for evaluation. Forecast methods are Delta, Rho, $(\mathit{Delta}+\mathit{Rho})/2$, Card.

**Figure 11.**H-step forecast accuracy relative to that of Naive2. Forecast methods are Card, Cardt, THIMA.log.

**Figure 12.**Average rejection of $95\%$ and $90\%$H-step forecast intervals for all frequencies of M4, retaining from $2H$ to H observations for evaluation.

Dimension | Evaluation | Sample Size | Forecasts | |||
---|---|---|---|---|---|---|

# Series | % | m | ${\mathit{T}}_{\mathbf{min}}$ | ${\mathit{T}}_{\mathbf{max}}$ | H | |

Yearly | 23,000 | $23.0\%$ | 1 | 13 | 835 | 6 |

Quarterly | 24,000 | $24.0\%$ | 4 | 16 | 866 | 8 |

Monthly | 48,000 | $48.0\%$ | 12 | 42 | 2794 | 18 |

Weekly | 359 | $0.4\%$ | 1 | 80 | 2597 | 13 |

Daily | 4227 | $4.2\%$ | 1 | 93 | 9919 | 14 |

Hourly | 414 | $0.4\%$ | 24 | 700 | 960 | 48 |

**Table 2.**Approximate expectations of sMAPE and MASE under different data generation processes, $H=1$. $\Phi $ is the standard normal cdf, $\varphi $ the density, ${m}_{3}=exp(\mu +{\sigma}^{2}/2).$

DGP | sMAPE | MASE |
---|---|---|

${y}_{t}\sim \mathrm{IN}[\mu ,{\sigma}^{2}]$ | $113\frac{\sigma}{\left|\mu \right|}$ | 1 |

$\mathsf{\Delta}{y}_{t}\sim \mathrm{IN}[\mu ,{\sigma}^{2}]$ | $\frac{200}{2T+1}\left[2\frac{\sigma}{\mu}\varphi \left(\frac{-\mu}{\sigma}\right)+1-2\Phi \left(\frac{-\mu}{\sigma}\right)\right]$ | 1 |

$\mathsf{\Delta}log{y}_{t}\sim \mathrm{IN}[\mu ,{\sigma}^{2}]$ | $200\frac{{m}_{3}-1}{{m}_{3}+1}$ | $\frac{{m}_{3}^{T}}{\frac{1}{T}{\sum}_{t=1}^{T}{m}_{3}^{t-1}}$ |

**Table 3.**Average MASE and sMAPE of 1-step Naive forecasts, forecasting the last observation of the training sample.

Yearly M3 (H = 1) | Yearly M4 (H = 1) | |||
---|---|---|---|---|

sMAPE | MASE | sMAPE | MASE | |

Naive2 | 9.585 | 1.416 | 8.390 | 1.688 |

**Table 4.**M3 performance of MASE and sMAPE for Theta(2) and revised benchmark methods. Lowest in

**bold**.

Yearly (H = 6) | Quarterly (H = 8) | Monthly (H = 18) | ||||
---|---|---|---|---|---|---|

M3 | sMAPE | MASE | sMAPE | MASE | sMAPE | MASE |

Full sample, holdback H | ||||||

Naive2 | 17.88 | 3.17 | 10.03 | 1.25 | 16.77 | 1.04 |

Theta(2) | 16.72 | 2.77 | 9.24 | 1.12 | 13.91 | 0.87 |

Theta.log | 16.00 | 2.68 | 9.15 | 1.11 | 13.57 | 0.85 |

THIMA.log | 16.10 | 2.68 | 9.19 | 1.11 | 13.75 | 0.86 |

With last observation removed, holdback H | ||||||

Naive2 | 18.57 | 3.31 | 9.54 | 1.22 | 16.11 | 1.01 |

Theta(2) | 17.07 | 2.87 | 9.26 | 1.13 | 13.61 | 0.84 |

Theta.log | 15.91 | 2.64 | 9.26 | 1.13 | 13.22 | 0.82 |

THIMA.log | 15.61 | 2.57 | 9.07 | 1.10 | 13.22 | 0.82 |

$1\cdots \cdots {\mathit{T}}_{\mathit{i}}\phantom{\rule{-0.166667em}{0ex}}-\phantom{\rule{-0.166667em}{0ex}}\mathit{H}$ | ${\mathit{T}}_{\mathit{i}}\phantom{\rule{-0.166667em}{0ex}}$ | $-\phantom{\rule{-0.166667em}{0ex}}\mathit{H}$ | $+1\cdots \cdots {\mathit{T}}_{\mathit{i}}$ | ${\mathit{T}}_{\mathit{i}}\phantom{\rule{-0.166667em}{0ex}}+\phantom{\rule{-0.166667em}{0ex}}1\cdots \cdots {\mathit{T}}_{\mathit{i}}+$ | H | |
---|---|---|---|---|---|---|

development | training | Test forecasts | unavailable | |||

competition | competitor forecasts from this | M4 team tests | ||||

first 1-step forecast | estimation | T | unused | |||

second 1-step forecast | estimation | T | unused | |||

last 1-step forecast | estimation | T |

End Year | 1991 | 2001 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |

Part of sample | 15.2% | 1.6% | 3.9% | 4.3% | 1.1% | 1.1% | 5.2% | 21.7% | 26.2% | 14.0% |

**Table 7.**Summary performance in M4 competition. Absolute coverage difference (ACD) is for a $95\%$ forecast interval except for submitted Card which used $90\%$. OWA is the overall weighted average of sMAPE and MASE, with weights determined by the relative number of series for each frequency. * denotes used ACD at 90%.

M4 | Y | Q | M | W | D | H | Y | Q | M | W | D | H | All | ||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|

sMAPE | MASE | sMAPE | MASE | OWA | |||||||||||

new Cardt | 13.51 | 9.91 | 12.67 | 6.75 | 3.01 | 8.92 | 3.10 | 1.15 | 0.93 | 2.33 | 3.21 | 0.81 | 11.757 | 1.582 | 0.849 |

submitted Card | 13.91 | 10.00 | 12.78 | 6.73 | 3.05 | 8.91 | 3.26 | 1.16 | 0.93 | 2.30 | 3.28 | 0.80 | 11.924 | 1.627 | 0.865 |

new THIMA.log | 13.51 | 10.02 | 13.21 | 7.90 | 3.03 | 18.41 | 3.05 | 1.17 | 0.97 | 2.54 | 3.24 | 2.50 | 12.090 | 1.601 | 0.864 |

MSIS | ACD 90%*/95% | MSIS | ACD | ||||||||||||

new Cardt | 25.72 | 8.92 | 8.23 | 16.01 | 27.01 | 5.84 | 0.002 | 0.000 | 0.003 | 0.007 | 0.005 | 0.013 | 13.23 | 0.002 | |

submitted Card * | 30.20 | 9.85 | 9.49 | 16.47 | 29.13 | 6.14 | 0.013 | 0.021 | 0.004 | 0.003 | 0.009 | 0.048 | 15.18 | 0.007 |

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**MDPI and ACS Style**

Castle, J.L.; Doornik, J.A.; Hendry, D.F.
Forecasting Principles from Experience with Forecasting Competitions. *Forecasting* **2021**, *3*, 138-165.
https://doi.org/10.3390/forecast3010010

**AMA Style**

Castle JL, Doornik JA, Hendry DF.
Forecasting Principles from Experience with Forecasting Competitions. *Forecasting*. 2021; 3(1):138-165.
https://doi.org/10.3390/forecast3010010

**Chicago/Turabian Style**

Castle, Jennifer L., Jurgen A. Doornik, and David F. Hendry.
2021. "Forecasting Principles from Experience with Forecasting Competitions" *Forecasting* 3, no. 1: 138-165.
https://doi.org/10.3390/forecast3010010