Previous Issue
Volume 7, June
 
 

Forecasting, Volume 7, Issue 3 (September 2025) – 1 article

  • Issues are regarded as officially published after their release is announced to the table of contents alert mailing list.
  • You may sign up for e-mail alerts to receive table of contents of newly released issues.
  • PDF is the official format for papers published in both, html and pdf forms. To view the papers in pdf format, click on the "PDF Full-text" link, and use the free Adobe Reader to open them.
Order results
Result details
Section
Select all
Export citation of selected articles as:
19 pages, 2144 KiB  
Article
Sensitivity Analysis of Priors in the Bayesian Dirichlet Auto-Regressive Moving Average Model
by Harrison Katz, Liz Medina and Robert E. Weiss
Forecasting 2025, 7(3), 32; https://doi.org/10.3390/forecast7030032 - 20 Jun 2025
Abstract
We examine how prior specification affects the Bayesian Dirichlet Auto-Regressive Moving Average (B-DARMA) model for compositional time series. Through three simulation scenarios—correct specification, overfitting, and underfitting—we compare five priors: informative, horseshoe, Laplace, mixture of normals, and hierarchical. Under correct model specification, all priors [...] Read more.
We examine how prior specification affects the Bayesian Dirichlet Auto-Regressive Moving Average (B-DARMA) model for compositional time series. Through three simulation scenarios—correct specification, overfitting, and underfitting—we compare five priors: informative, horseshoe, Laplace, mixture of normals, and hierarchical. Under correct model specification, all priors perform similarly, although the horseshoe and hierarchical priors produce slightly lower bias. When the model overfits, strong shrinkage—particularly from the horseshoe prior—proves advantageous. However, none of the priors can compensate for model misspecification if key VAR/VMA terms are omitted. We apply B-DARMA to daily S&P 500 sector trading data, using a large-lag model to demonstrate overparameterization risks. Shrinkage priors effectively mitigate spurious complexity, whereas weakly informative priors inflate errors in volatile sectors. These findings highlight the critical role of carefully selecting priors and managing model complexity in compositional time-series analysis, particularly in high-dimensional settings. Full article
(This article belongs to the Section Forecasting in Economics and Management)
Show Figures

Figure 1

Previous Issue
Back to TopTop